Canada Doubled Down On Real Estate In 2005. Now It’s The Biggest Bubble The G7 Has Ever Seen, and It’s Getting Bigger

Canadians know real estate prices have grown quickly, but most have no idea how it compares to the world. US Federal Reserve Bank of Dallas (US Fed) data shows how home prices evolved since the Financial Crisis. While most countries scrambled to balance home prices with local economic growth, Canada doubled down on housing. The result is Canadian real estate prices have grown at nearly triple the pace of any G7 country, since 2005.

Canadian Real Estate Prices Increased Over 3% Last Year

Canadian real estate prices have seen growth slow recently, but not much. Canadian prices at the national level have increased 3.39% in Q1 2020, in real terms when compared to a year ago. To contrast, the US follows with a lower 3.29% over the same period. Canada is currently right in the middle of the G7, with Germany (+4.9%) and France (+3.9%) being the two markets above. It doesn’t seem like a big deal, until you realize this is very high growth after the run Canadian prices have made.

G7 Real Estate Prices – 12 Month Change

The inflation adjuted 12 month change in G7 real estate prices for Q1 2020.

Source: US Federal Reserve Bank of Dallas, Better Dwelling.

Canadian Real Estate Prices Grew At Nearly 3x The Rate of The Next G7 Country

Since the Global Financial Crisis (2007-2008), Canada leaned on the housing economy, and it shows. Canadian home prices increased a whopping 88.0% from 2005 to 2020. The next closest G7 country is Germany, with prices having increased 32.3% over the same period. Yes, that’s nearly just a third. For context, US real estate prices have only increased 3.0% over the same period.

G7 Real Estate Price Index

An inflation adjusted index of G7 real estate prices.

Source: US Federal Reserve Bank of Dallas, Better Dwelling.

Canadian Real Estate Prices Increased Rapidly Before 2015

Most of the price growth narrative starts around 2015, but we can see the horse already left the barn at that point. Canadian real estate prices increased 50.5% from 2005 to 2015. The next closest G7 country was France, which saw price growth increase only 4.8% over the same period – less than one-tenth. To contrast, US real estate prices were down 15.1% at the time. Rather than accept a market inefficiency against labour, Canada doubled down on credit expansion.

G7 Real Estate Price Change From 2005 to 2015

The inflation adjusted percent change in real estate prices across G7 countries from 2005 to 2015.

Source: US Federal Reserve Bank of Dallas, Better Dwelling.

Since the Global Financial Crisis, Canada has leaned on non-productive investment, and it shows. The rate of residential investment to GDP more than doubled from 2000 to 2020. Last year, real estate transactions were generating almost half of all GDP growth. This isn’t just a Toronto and Vancouver thing either. The national index outpaces growth for every other G7 country, and is more than double the next one. With the government currently dedicating an unusual amount of resources to driving home prices during this recession, they’re shooting to go all-in or for failure.

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  • Laurel 3 years ago

    Canada turned into a ponzi scheme for cheap growth. We’re now focused on immigrants just to pad GDP, and have zero interest in developing anything other than regions for big donors.

    It’s not even a political party. This is how Canadian politics works.

    • David 3 years ago

      It’s true. The only investment you can find as a startup in Canada is if you’re politically connected, or you want to use your house as a loan. I didn’t want to move to San Francisco, but you don’t get any other option. Toronto startups are largely funded by US investors anyway.

    • MH 3 years ago

      There is nothing more expensive than cheap though. And there is no even a headline growth anymore, even before COVID.

      Have you seen a done gambler conjuring pathetic schemes to win it all back? The only difference is that this gambler can legally pick taxpayers’ pockets to finance those schemes. As long as taxpayers allow it.

      By now it’s crystal clear that they will not stop until taxpayers make them stop.

  • Li 3 years ago

    Important point. Just because it’s a bubble, doesn’t mean it will crash. You can get a wind down over the next 20 years. It just means ridiculously slow economic growth.

    • Average Man 3 years ago

      Don’t you almost want a crash then? I mean, I do because I’m a nihilist who missed my window, but objectively isn’t it better to just rip the band-aid off and get it over with?

  • Jared 3 years ago

    I’m going to need a little help here understanding Canada. Real estate prices are jumping while stores are shuttering on every corner? I saw a youtube video of downtown Toronto, and it looked like a commercial district (Queen St?) was almost entirely vacant spaces.

    But people are paying more for homes because of cheap financing?

    • RM 3 years ago

      … it sounds like you’re not from ‘round here. The short answer, yes. Oh boy do we loves our houses. There is an unwavering belief that house prices always go up, which in fairness has yet to be disproven, so the antiquated view that houses are just places you live in is long gone. But c’mon, that was such a 20th century mindset anyway.

      • EnglishInCanada 3 years ago

        @RM. “here is an unwavering belief that house prices always go up, which in fairness has yet to be disproven, so the antiquated view that houses are just places you live in is long gone”

        Not really RM, House prices dropped hard during 89-95 period.

    • Noah 3 years ago

      Well I think Canadian Government is playing a lots of what is happening in the real state expensive prices , by not tightening the screws against (Speculators , foreign investors and by not regulating immigration to a degree where canada can absorb the numbers, and possibility of fixed prices taking place in the market).

  • Jason Chau 3 years ago

    Canada beat out the Asian financial crisis. Nice! Negative rates and a lost generation, here we come.

  • dogwhistle 3 years ago

    “non-productive investment”

    And that’s the main issue, this is not money invested in creating real wealth nor jobs:

    building jobs last for the duration of the build. Investment in real business creates long-lasting jobs and growth.

    Real estate creates jobs for banking, mortgages, insurance. All very very easily done by software.
    Realtors? Sorry, let’s not even go there, promising returns on investment which would be legally liable in any other business. it’s laughable, pathetic and dangerous.

  • Bill 3 years ago

    2005-2008 US- Insiders were warning of impeding collapse and bankers, mortgage brokers laughed
    2009 – US Massive bailouts with taxpayer money to keep financial institutions afloat, severe recession, millions unemployed, millions of people losing their life savings.
    2015-2020 CAN -Insiders were warning of impeding collapse including CMHC and bankers, mortgage brokers laughed

    This is 100% inevitable as it has been unsustainable for years and warnings/statistics to prove it were ignored to keep the fake economy rolling. I just pray not a dollar of my taxes goes towards any type of bailout whatsoever. Let those who made bad decisions deal with the consequences.

  • michael 3 years ago

    I’ve recently moved from Toronto to Tokyo and would like to highlight what the numbers in the graph really mean for Canada. In Japan, it’s possible to buy a small plot of land in some distant prefecture and build a house on it for under $50,000. Well under, in many places.

    If you don’t mind an hour commute into central Tokyo, you can buy a ~15 year old house for $100,000.

    If you want to live in a nicer location half an hour from the financial district you can again buy a ~15 year old house for $600,000.

    A friend told me recently that there were no houses in his kids’ school catchment area for less than $2.7m. He lives in Toronto’s Beaches area. For laughs I looked at what that would buy in Shizuoka, a city 70k outside Tokyo, where one of my staff just bought a house. I found no houses. But I did find a six story condo property.

  • Lj 3 years ago

    I bought in 2007. So that means I was buying into a bubble ! House prices use to grow $100k in 4/5yrs upto 2014. Since 2015 and influx of immigration houses in gta went double in 5 yrs time, how’s that sustainable? Banks know how Mortages get approved and how fake incomes are shown to get the approval to buy a already propped up house making it even further expensive. Canadian Dream is dead. Back in 2002 a household working a decent Job making 80K per year use to buy a detached house and still enjoy life. Nowadays houses are way out of reach of most hard working Canadians. And these government policies are inflating real estate even further. 90% of all small business 40k grants ended up in condo towns semis investment. Everyone took that money and bought properties.

    • Yusef 3 years ago

      Yes, and if interest rates go to negative eight, and household debt hits 400%, you’ll make the same amount again!

      The point is a bubble can be chased with more stimulus to harden the economy, but it creates long term damage to economic growth. Canada runs immigration at 2x any other country, but it’s GDP falls per capita.

      In order to keep this up, they make have to go to -8% interest rates, but then you’re cash ends up having deeply negative values. Essentially they killed bond yields, investment, loaded household up with debt, and are now trying to average out performance to stay in office.

      It’s a plan that ends very badly, and they’re already spending billions to prop up prices, and not getting a lot of movement.

    • Fight Back 3 years ago

      You just got lucky and you are part of the problem.

  • Fight Back 3 years ago

    In Toronto and Vancouver we earn half as much as Newyorkers we pay double their taxes and yet our suburbs cost twice as much. Newyork is world’s financial capital, whats in Toronto or Vancouver? Shiity weather and money laundering?

    Stop lieing and admit Canada have the worst housing bubble in the western world. The government is propping up this bubble to benefit their own, they are sucking the life blood out of young people and transfering it to the old and unproductive.

    This is the most horrendous crime against Canada ever, someone needs to be held accountable for this real estate mess. Someone needs to make things right!

    • SH 3 years ago

      Fight Back – did you vote Liberal in 2015/19? If so, you very clearly voted against your own interests as everyone knew the Liberals would open the immigration floodgates to suppress wages of young people and inflate housing. And that’s exactly what happened.

      • Deano 3 years ago

        The Conservatives would have done the same. So would the NDP. Maybe even the Bloc. Canada is in so deep, getting out would be political suicide.

  • SH 3 years ago

    Any young Canadian with talent must leave the country. Anywhere else (in the developed world) is superior to Canada. Even Australia – although it has a massive RE bubble of its own, wages are higher than in Canada, taxes are lower, and there are more options to live in terms of desirable cities. Canada is bargain bin quality at luxury prices. Get out, Canadian youth. The country isn’t for you.

    • alvi 3 years ago

      Yeah the real estate bubble in Australia and New Zealand having nothing to do with immigration. Canada sucks so moved to Australia, they have housing bubble but no immigration so how is it possible to move there.

      • DownToFinance 3 years ago

        They do have immigration and they do have their own bubble. The reason Canada’s bubble is still bigger is because as the author points out, “Canada doubled down on credit expansion”. You can put 5% down on a house, leverage to 10xhousehold income and the Government insures your debt through CMHC with taxpayer dollars. That is absolute lunacy. An active bailout for the lenders to give super risky mortgages.

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