Canada’s Real Estate Bubble Has Buyers Paying 2x The Mortgage of Existing Owners

Canadian homeowners often say affordability isn’t that bad, new buyers just need to stretch further. That’s because they’re most likely unaware they’re paying half of what it takes to buy a home now. Equifax data shows an average homeowner pays half as much on a mortgage compared to buyers in Q3 2021. This trend has worsened as interest rates fell, turning a hot market into the Hunger Games. Canada is a land of opportunity. The opportunity for immigrants and young people to pay double for shelter, compared to existing households. 

Canadian Homeowners Are Paying Less Than Half of What New Buyers Need To Pay

Canadian home buyers pay huge premiums compared to existing owners, and it’s getting worse. The average homeowner had a monthly mortgage payment of $1,382 in Q3 2021, a reasonably modest amount. An average new home buyer isn’t quite as lucky, with an average mortgage of $3,139, about 127% more. The gap has been getting wider, even accounting for the decline in interest costs.

Over the past few years, the gap between homeowner payments and home buyers has increased. In 2020, the average home purchase required a minimum monthly payment of $2,517 for Q3. It’s about 90% higher than the average monthly payment made by an existing owner in the quarter.

Pre-pandemic, the gap was much smaller despite substantially higher interest costs. In 2019, the average home purchase required a monthly mortgage payment of $2,396. It was about 81% higher than the average payment an existing homeowner was making. But still better. Falling rates didn’t fix it at the national level, but let’s see what this looks like in major markets.

Canadian Average Q3 Mortgage Payments

The average monthly mortgage payment for existing homeowners, compared to the mortgage payment an average home buyer in the quarter needs to pay.

Source: Equifax; CMHC; Better Dwelling.

Toronto Real Estate Buyers Pay 118% More Than Existing Owners

Greater Toronto real estate also shows a similar trend. An average home buyer in Q3 2021 needs to pay 118% more per month on a mortgage compared to existing owners. In Q3 2019, the premium was 113%, so this is a pretty big jump. The cut to interest costs was absorbed and then some.

Vancouver Real Estate Buyers Pay 121% More Than Existing Owners

Vancouver real estate lagged behind the rest of Canada for price growth since 2020. An average home buyer in Q3 2021 needs to pay 120.5% more per month than existing owners do on their mortgages. In Q3 2019, the premium was 130%, which is one of the few improvements. It’s still very high, especially when you consider it’s the most expensive market in Canada. The incomes aren’t any better than the national average, either.

Montreal Real Estate Buyers Pay 119% More Than Existing Owners

Montreal real estate is seeing the gap widen very fast, similar to national numbers. An average buyer in Q3 2021 needs to pay 119% more than existing owners. In Q3 2019, new buyers were paying 74% more than current owners’ monthly payments. The growth in the gap between 2019 and 2021 is just one point below the national average. 

Canada’s government and the central bank are making reckless decisions. Low rates are destroying affordability, by driving excess demand. Leadership argues otherwise, despite Bank of Canada research showing they are incorrect. It also has the G7’s biggest gap between home prices and incomes, with the lowest growth forecast. This is not an ideal setup for the future, it’s an exploitative one.

Canada is pumping the gas on higher home prices. Policymakers fear existing homeowners paying half the price for housing, and who recently gained ~$160k in equity in one year, might lose money. So it’s making young people pay more than double to support the gains of households with the windfall. It’s an odd set of priorities. Unless you’re a wolf spider, I guess.

27 Comments

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  • LT 1 year ago

    Cue homeowners to say then you can not work and have the next generation pay double too. In 50 years 25% of the population will pay for 100% of the tax revenue? Nice math, everyone.

  • Investor 1 year ago

    Not exactly sure when the various government agencies are going to feel compelled to act, but they better not leave it to the forces of nature – that would be more devastating for all of us.

  • Aki 1 year ago

    someone bought 1 million house in 2020 , market went up by 20 %. in 2021 same house someone buys for 1.2 million ..market goes down 20 % with increasing rates that house is 1 million now. Home owner looses 200k in a single day wow

    • RW 1 year ago

      $1.2 million down to $1 million is a 16.7% decline tho.

  • Jared 1 year ago

    Someone is buying these properties at these prices. The demand has never been higher… doesn’t that kind of destroy the affordability argument? If it was so unaffordable why are houses selling within hours of being listed?

    • questions guy 1 year ago

      because people are trading up, or using extreme leverage… I’m trying to buy with $400k cash ready and still can’t get into a place that makes sense

    • Alex 1 year ago

      If you look at sales data you will see that less and less homes are being sold, liquidity is drying up while investors are fighting over remaining stock because of expected rate increases driving FOMO.

      This isn’t due to a supply shortage, but rather a turnover shortage, no one wants to sell properties at the moment due to a moral hazard driven expectation of parabolic prices well into the future.

      There is tons of articles on this website which go into data driven detail on shrinking affordability with the introduction of ever increasing leverage to stoke demand.

      The issue is, once you combine all of the following, when a large market liquidation event finally occurs, due to the factors at play, you will see valuations get crushed as everyone, especially investors, rush for the exit at the same time.

      Bubble bursts essentially look like a theatre fire, with people trampling each other for the exits, and those who typically get hurt the most are the regular buyers who overpaid for a property they bought on the margin, and are now forced to hold at a huge loss for likely many years.

      As mentioned before, we will likely see a 50% valuation compression within 3-5 years due primarily to a huge debt load with shrinking economic productivity.

      • Louis 1 year ago

        The real estate market is always slow during the winter.

        50% correction… dream on.

      • Geoff 1 year ago

        Where did my comment go?

        50% correction? Dream on people.

        There is low supply right now as it is that time of year when it naturally dwindles. There is no bubble in the GTA. I live in Hamilton and most buyers in the nicer neighbourhoods moving in are actually people and not investors. People are being pushed out of Toronto so naturally the surrounding areas are getting expensive.

        It’s not rocket science.
        It’s also not a bubble.

        • Iman 1 year ago

          By definition a bubble is an increase due to a temporary shortage of supply. A “squeeze.”

          From inside the bubble, people don’t even realize when they’re explaining one.

          • Geoff 1 year ago

            You mean like better dwelling has been doing since it started? And all the other economists saying it is a bubble since 2010?

            There are different explanations for bubbles, but the fact remains that a bubble would burst. Housing is going to be expensive around the GTA. Good luck increasing “supply” as your definition would have it – it is not going to happen around the Golden Horseshoe as there simply is not enough land.

            It is not a bubble 😉

          • Geoff 1 year ago

            lol comment deleted again? What up mods?

            Just calling this website out and other economists for saying we have been in a bubble since the beginning of your existence.

            There is no more supply in the horseshoe and gta that will be cheap – EVER! People want to live here.
            There are tons of different definitions of a “bubble” – your example is a layman’s singular suggestion and it doesn’t even make sense. There still is supply, it’s just expensive.

            Bubbles burst. Around the gta and horseshoe prices will level out but correct? I doubt it.

          • Jamie Price 1 year ago

            LOL. This clown Geoff is a master of deception. He publishes the same comment twice every time and then writes “it was deleted!”

            Okay bud. Maybe learn how to comment before giving us your master take on home prices.

            FYI: Vancouver prices fell 30% in 2017. Some categories have barely recovered. You keep saying it didn’t happen, but it did. That’s when I bought in WV. Vancouver and Toronto’s pullbacks are one of the most accurate seen.

            Clowns like you that can’t calculate returns (or comment on a website, apparently) just can’t seem to grasp home prices are averaged out with the suburbs to minimize down cycles. By your logic, there was no crash in the 90s. Prices corrected.

    • Craig Lee 1 year ago

      FOMO is the primary driver with institutional purchasing as a secondary force. It’s never a good idea to pay top dollar for any investment, real estate is no different.

      • Craig Lee 1 year ago

        When you look at the numbers, prices in Toronto and Vancouver are definitely not affordable for most who are purchasing, they’re able to buy because of: lenders acceptance of rental suite income as part of the payment, substantial down payments given by parents who have taken out HELOC loans against existing properties and loose interpretations of terms like “income” on their applications.

    • Trevon 1 year ago

      Because cheap money, walk into a bank with decent dual income you will qualify for a 7 figure mortgage. Cracks start to form when the feds put there foot to the pedal on the rates, add some recession to the recipe and job contractions than things will really start to get interesting. It’s not a question of if it’s a question of when… couple be 2022 or 2024 but there is a reckoning coming!

  • Shane-O-Mac 1 year ago

    Over and over again, articles and pundits continue to put levels of government into play to “take control”. Governments are classic non-actors until well after a burst of bubbles – and only then will they enact new rules to shore up future bubbles. But in the end, another bubble will arise from another angle.
    Clearly, there are illegal or at the very least questionable lending on the mortgage/HELOC/reverse mortgage loans which are pumping up this mess.
    My wife and I have kept our powder dry for years and have been patiently waiting to help someone take over their nightmare.
    But in the end, every citizen needs to understand that living for today and ignoring tomorrow will only drive the human brain to want more – thus FOMO.
    And in truth, my household has had to save for holidays, RESP contributions, new Leon’s furniture, and avoided debt like Covid. And we are getting to read constant stories of people living as if debt is as important as fresh water and warm apple pie.
    Gravity is a b*tch. Should have chewed food instead of swallowing whole.
    Now your spoon and future worth is stuck where it will be uncomfortable.

    • Jared 1 year ago

      Shane – don’t you think you missed out the opportunity for cheap debt with deep negative real interest rates? Your purchasing power has been crushed since COVID and if you didn’t have debt to inflate, you simply lost out

    • Em 1 year ago

      You mean you missed the train years ago. It’s currently a bubble. As long as you didn’t buy in the last year or two you should be fine. There’s a lot of hyperbole about the bubble bursting and homeowners losing everything. But the vast majority of homeowners bought our homes 5, 10 and 20+ years ago. To hit home prices enough to significantly bring house prices down would require the entire economy collapsing. And if that happens you likely won’t have a job to buy up any houses in distress. It will just be corporations buying them up for cheap just like in the US after the 2008 RE collapse.

      We bought 12 years ago. Our house is paid off, no mortgage, no debt and 40 years old. Our parents didn’t help us. But yes our timing was lucky. If the market collapses, my biggest concern is that employment/business doesn’t crash with it. And that’s a concern for everyone regardless of whether they own or rent.

      Careful what you wish for.

      • BikeMike 1 year ago

        Do you work for a Canadian employer? Are all of your assets in CAD?

  • bharat brand 1 year ago

    i have shifted here and amazed with these figures.. now the question is.. can i afford any of them?? By the way great article with report..

  • Jodi Jodi 1 year ago

    This is disgusting. I don’t know a single person who can afford to get into the market in the GTA. Investors are buying homes and inflating the prices. There are a lot of houses sitting empty because these investors are trying to rent them out for way more than most people can afford. I hope the market crashes and their greed comes back around to slap them all up side the head. Everyone deserves a place to live and enough to eat and shouldn’t have to choose between the two. We are headed for a sea of tent cities and are halfway there now. Canada was just ranked the number one best place to live in the world once again, we need to do better and earn that title.

    • Tracy Brown 1 year ago

      Jodi – I hear your complaint but I couldn’t afford to buy in the GTA when I bought my home more than twenty years ago! So same old, same old. As a young couple, starting out – more than twenty years ago we purchased well outside of the city.

      There are many, many more affordable places to live in Canada than our big cities and many lovely communities. Yes, these are starting to be more expensive now, too, as working from home becomes more of an option for many. Really, the rules haven’t changed – buy something you can afford, where you can afford, and try, if possible not to buy right at the very top of the market. And make a decision that is going to last for a reasonable period of time so that it doesn’t really matter if the market goes up or down.

  • Priced Out 1 year ago

    Problem is $1M is for a crappy house in a neighbourhood with poor schools. My wife and I both make individually 100k+ plus have savings of about 700k that we can put down towards the down payment of the house without jeopardizing our long-term investments. Prices are so absurd that fundamentally I can’t justify these prices (the house that we think we should own costs north of $2M). At first it made sense to stay out of the market but the leaps and bound homes have been increasing YoY is truly staggering. If we could leave, we would, but family and jobs tie us to Toronto.

    What’s funny on CP24 they have that real estate talk show and a family 4 was asking where should they live as they work in Toronto. The agents advice was drive to where you can afford, so they recommended Barrie and Hamilton.

    • Trevor 1 year ago

      A comical solution to drive two hours per day to work. At some point people stop driving, and that removes the value of the major city.

    • Francois Tardy 1 year ago

      A 100 k$ salary in Toronto isn’t what it used to be. You are thinking of the house that you would live in perhaps 20 years ago with two incomes at that salary, but it is possible that at the time, you would have also earned considerably less.

      At this pace, everyone will become a millionaire, and the term will lose all meaning.

  • Francois Tardy 1 year ago

    A 100 k$ salary in Toronto isn’t what it used to be. You are thinking of the house that you would live in perhaps 20 years ago with two incomes at that salary, but it is possible that at the time, you would have also earned considerably less.

    At this pace, everyone will become a millionaire, and the term will lose all meaning.

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