Canada Global

Canada’s Real Estate Bubble Grew Faster Than Any G7 Country In The Past 30 Years

Canadian home prices just keep rising at a faster and faster rate. US Federal Reserve (The Fed) data shows real home prices in the country surged in Q2 2021. Actually, that’s really underselling what happened. Residential real estate prices in Canada are growing at the fastest rates in the G7. Not just over the past year, but over the past 3 decades, nothing in the G7 even comes close to this rate of price growth.

Canadian Home Prices Are Growing At The Fastest Rate In Three Decades… For Any G7 Country

Canadian residential real estate prices surged at one of the fastest rates on record. Real home prices are up 6.89% in Q2 2021 and are now 25.60% higher than the same quarter a year before. Both the quarterly and annual increases are the largest in the G7 by a wide margin. In fact, annual growth hasn’t been this high in a looong time. 

G7 Real Home Price Index Change

The 12-month percent change of the inflation-adjusted indexed price of homes across the G7.

Source: US Federal Reserve; Better Dwelling.

Just over three decades, to be more precise. Canada’s 25.6% real annual growth in Q2 2021 towers over the paltry 9.13% peak growth the US saw in 2005. One needs to go all the way back to Q4 1989 to see anything like this in the G7, when Italy squeezed out a larger gain.

Only five quarters in the past 46 years have printed larger annual price growth in real terms across the G7. Outside of Canada, not one of those gains has been seen after 1990. Monetary systems aren’t supposed to be this poorly managed with all of the new policy tools since the 90s. It takes an extra special effort to screw up this royally.

US Home Prices Are Growing Fast, But It’s Still A Fraction of Canada’s Rate

US home prices are also making headlines for rapid price growth, but it looks tame in comparison. Real home prices in the country increased 3.45% in Q2 2021, and are 7.75% higher than the same quarter a year before. Even with these lofty gains at nearly the size of peak bubble growth, they’re only a third the size of Canada.

Global Real Estate Prices Are Surging, But Not Like In Canada

Global real estate prices might be surging, but no advanced economy is seeing what Canada is. The average quarterly growth for the G7 excluding Canada was a 1.25% real increase. This is just under a fifth of the size of Canadian home price grew over the same period. The US and Germany are the next closest countries, with growth at half and a third of the rate, respectively.

Canadian Home Prices Are Growing 4x The Rate of The Next G7 Country

Canadian real home price growth on an annual basis is also lofty for the G7. Average annual growth for the G7 excluding Canada was 5.48% in Q2 2021, just under a quarter the size of Canada. The UK is in a distant second with 9.22% growth, and Germany’s home prices are 8.55% higher. Annual growth is at least double the rate in Canada compared to its advanced economic peers.

G7 Real Annual Home Price Growth

The inflation-adjusted annual price increase for home prices in G7 countries in Q2 2021.

Source: US Federal Reserve; Better Dwelling.

Canadian Home Prices Have Increased 139% Since 2005, 3x More Than The Next G7 Country

Saying Canadian home prices are frothy, is like saying Mozart had a little musical talent. Since 2005, real home prices are up 139% as of Q2 2021, and that’s at the national level. Cities like Toronto and Vancouver have seen even larger growth over this period. Smaller secondary markets around these cities have grown even faster.

G7 Real Home Price Index

The inflation-adjusted indexed price of homes across the G7 (2005 = 100).

Source: US Federal Reserve; Better Dwelling.

Since 2005, Germany’s real home prices are the second-fastest growing in the G7.  At 46.65% in Q2 2021, they’ve shown about a third of the growth seen in Canada over the same period. That was enough for residents of the country’s capital to vote for nationalizing the rental stock

The US, even including the current price boom, has only increased 10.49% over the period. One would think alarms would go off with home prices growing at 13x the rate of the country’s closest trading partner. Nope, Canada’s central bank actually said they “need” the growth.

Canadian real estate is now showing a few signs of cooling. Fewer sales and falling investments are two of the big ones. Though the country just doubled down on policy to expand credit, and push prices higher. While that sounds worrying, major markets are approaching the point of systemic failure.

Not even a correction can fix affordability in markets like Toronto and Vancouver at this point. Add to that, Canada’s largest bank warned tightening credit should contain further growth. Buyers are now facing the opposite conditions seen at the beginning of the pandemic.

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16 Comments

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  • Reply
    Daryl 7 days ago

    I wonder if I’m more worried as a homeowner, or if renters are worried they’ll never be able to buy-in.

    Would like to trade up, but don’t want to trade in my equity to find out I’m all of a sudden a high ratio owner at renewal due to a price adjustment and need to top up my equity.

    • Reply
      David Chan 7 days ago

      A little delusional to think worried about whether you made enough money on your home is worse than not being exposed to the market.

      I’m a homeowner, and I thank my lucky stars I bought during the 2018 dip. At my salary (DINK with both earning six figures), it would be a real struggle to buy anything of a similar size at these prices. I worry about liquidity 10 years down the road though. As Boomers get older and need to sell, who do they sell to? An all hedge fund country?

      • Reply
        Chacha 7 days ago

        Geez that’s a good point…which millennials can buy a 2 mil house?

      • Reply
        Leo Downey 6 days ago

        I’m glad to see your comment about screwing it up royally! That is precision drilling right there. Our celebrated leader wants more immigrants to drive valuations higher!

  • Reply
    Christopher Barclay 7 days ago

    FFTP in a nutshell. 30% of people that want to pursue further marginalization of society set 100% of the agenda.

    • Reply
      David Chan 7 days ago

      You’re kidding yourselves if you think other parties wouldn’t have tried to inflate the bubble as well. The only benefit the CPC would have had is less government spending, so QE would have been controlled a lot faster.

      This isn’t a matter of who would have stopped the price growth, but one of who would have pushed for the smallest growth.

  • Reply
    Kelsey 7 days ago

    Vancouver is still cheap compared to cities like Monaco and Hong Kong. Even in Singapore you can’t find a flat nearly at these prices, never mind a detached home for $2 million.

    • Reply
      Trader Jim 7 days ago

      My income tax liability would be 1/5 to 0% of its current level in any of those countries. So yeah, triple the price to carry it sounds about right.

      But then you’re also comparing the opportunity of doing business in those places vs Canada, which isn’t even in the same league unless you need a lot of cheap labor and don’t generate income personally, but only through a corp.

    • Reply
      Brandon 7 days ago

      Those are both small islands with structural advantages.

      Monaco being a global tax haven for the ultra wealthy, and Hong Kong being the only way for most people in China to obtain citizenship abroad.

      • Reply
        Vic 6 days ago

        But wait a minute, there are 350,000 new immigrants enter Canada every year and thats the engine , money contribution and population growth.

  • Reply
    Trader Jim 7 days ago

    What’s the highest any country has gone in on residential investment? I’m willing to bet none have done what Canada was just willing to do, and harvest growth by borrowing future income to claim a triumph of vanity metrics.

  • Reply
    Chacha 7 days ago

    Soooo…should I upgrade now?

  • Reply
    CG 7 days ago

    There is one word to describe the housing market in Canada today and that is “UNSUSTAINABLE”. Couple these increases with a inflation and a recession (stagflation) and then remember what happened to interest rates in 1980-81. Interesting times ahead.

  • Reply
    V 7 days ago

    If they would have stopped these blind bindings before this got out of control I doubt dumb individuals would have overpaid as much as they did. It appears Canada has a lot of desperate people looking to get into a house and are willing to be house poor!

  • Reply
    questions guy 6 days ago

    is it possible other G7 countries are more honest about their stated inflation rates?

    I know Canada’s calculation is laughable

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