Canada’s Real Estate Bubble Is Now The Largest Ever, Correction Needed: RBC

Canadian real estate is in the largest bubble the county has ever experienced. RBC warns that housing affordability has eroded right across the country in November. In a research note to investors, the bank explains it’s now even harder to buy a home than during the 1980s bubble. A correction is now required to stabilize the economy, and even then it won’t be quick. The bank believes it will take years to undue the price damage done by the 2021 price surge. 

Canada’s Real Estate Has Never Been Less Affordable

You call that a bubble? Today’s buyers might call that affordable housing. Canadian households have never needed to spend a larger share of their income to own a home. November home buyers would need to spend 62.7% of their household income to service a mortgage. It’s 14.5 points higher than last year, an incredibly sharp increase, and that’s right across the country. 

The bank emphasized the country has never seen affordability erode to this level. Not in the 1990s bubble. Not even the 1980s bubble, when mortgage rates briefly rose above 14%. This is a challenge Canada has never seen before, and it’s no longer just a Toronto and Vancouver issue.

Ontario & BC Are Canada’s Least Affordable Real Estate Markets

Every market in Canada is seeing homeownership spiral, but not like Ontario and BC. In Toronto a household needs to spend 85.2% of its income to service a mortgage. Nearly a third of that increase occurred over the past two years, as prices surged. RBC sees the market giving back some of those gains not so far into the future. 

“We think a further rollback of earlier outsized price gains is in the cards. In fact we see it necessary to stabilize the market,” explained Robert Hogue, RBC’s assistant chief economist. 

Meanwhile in BC, its major real estate market is now one of the hardest markets to buy in the world. Vancouver buyers need to dedicate 95.8% of their income to service a mortgage. No other generation in Canada’s history has ever seen home prices outrun the incomes on such a scale. 

“Owning a home has never been so unaffordable anywhere in Canada ever—and probably most places around the world,” said Hogue in regards to Vancouver.  

Adding, “It will take further declines to reignite the ownership dream of many who have been shut out of the market. We expect activity to stay de-pressed while earlier price gains are partly rolled back.” 

Canadian Real Estate To See A “Needed” Correction To Restore Some Affordability

Rising interest rates are the immediate cause of the sudden erosion, but not all. Not even the majority, if we’re being frank. Frothy prices, especially in smaller markets are the major issue. Even before interest rates increased, excess demand driven by low rates eroded affordability. RBC sees interest rates stabilizing, which will help to correct prices and restore balance. 

How much of a correction the bank expects is a little tricky to see, due to their forecasting inputs. The bank called a 14% drop from the 2022 peak hit earlier this year. As we mentioned this summer, they use the RPS-Royal LePage aggregate HPI for this calculation. That doesn’t directly translate to the price movements you’re likely used to seeing.

The mild-ish sounding 14% correction would be one of the largest in history, if not the largest. A 14% drop would rival the 80s and 90s corrections using the RPS-Royal LePage HPI. The CREA HPI doesn’t have data prior to 2005, so a direct comparison is hard to make. However, the HPI is roughly 3x the movement seen on the RPS-Royal LePage HPI for periods that overlap.

Growing household incomes are also expected to help with affordability. As incomes rise and prices stagnate, or contract, markets become more affordable.

Fixing this market won’t be a short process like many think—it will take a long time. The extended run makes it difficult to appreciate how distorted markets have become. “It will likely take years to fully reverse the tremendous deterioration that took place since 2021,” said Hogue.



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  • Trader Jim 1 year ago

    The beauty of higher rates and lower prices are you can earn more money and pay it off faster, and potentially pay less interest. If your mortgage debt is all principal, it’s almost better to not pay it off when interest is low, perpetually draining the country’s productivity.

  • GTA Landlord 1 year ago

    Been dealing with Toronto real estate investment properties for a long time, and nothing about this market is okay. It might have been debatable in 2017, but we need a rate reset to restore prices to a normal baseline.

    Long term value is being destroyed in cities so their suburban developers who have no interest in the city’s value.

  • Gerald Haw 1 year ago

    A 40%-50% correction should fix this market. 30% via price drops and 10% via inflation are likely the path that’s going to happen. H

  • Mortgage Guy 1 year ago

    A lot of private mortgages to help people close on new projects being handed out right now. No one can afford this market, and speculators are finding that out now.

    • CreditGuy 1 year ago

      Really? I thought MICS were having liquidity problems and were gating funds. Some MICS have even suspended lending temporarily. I know the B lenders and credit unions are being flooded with apps, many of which are refi’s to pay out maturing privates that are calling their funds back. If this market corrects any further and unemployment rises substantially the defaults are going to pile up on the private lenders books if not now then at maturity if the mortgage is prepaid as the borrowers get hit with a massive payment shock. The challenge with private lending in this market is the exit plan is just not there like it used to be for higher ltv mortgages (<65%) so these deals potentially get stuck on the books and some may default. A lot of MICS started up during the housing bull run of the last 14 years and soon a lot will go under. Remember these MICS rely on a continuous flow of incoming investor funds and mortgage churn to keep operating. As investors pull their money out and these mortgages remain on the books or default, the MICS will find it very difficult to keep operating profitably.

      • Tim 1 year ago

        MICs =/= to private lenders. MICs are pooled funds typically to fund the initial land acquisition or construction, while a private mortgage are usually just a single lender (or handful) that lend for a mortgage.

  • Winnie The Pooh 1 year ago

    Vancouver is absolutely bonkers that you need a $200k household income just to get a tiny condo. Canada’s 1% households living large in our tiny one-bedrooms, but location is everything! yeah, right.

  • dave frazer 1 year ago

    A drop of 40-70% from peak is quite possible. House prices have to drop to about 3 times earnings. Most people dont think thats going to happen. Who buys houses much of the well paid. lawyers, real estate people, investors, salesmen of all kinds. Whats happening to these peoples incomes a drastic decline. I have not seen any figures for recent new car sales. Yesterday, Ram was dropping truck prices in the Usa. Sales are down right accross the board . Most high end retail sales came from cash inflows relative to house sales. Its just stopping from lack of activity and fear of future cash requirements. Give it another few months and all the real estate hangers on will be in dire straights. Lawyers, moving companies car salesmen, construction workers, there is a long list

    • Itchy Bear 1 year ago

      RAMs being advertised 20% off MSRP at dealership near Eglinton and Don Mills in Toronto. Not sure how to factor this into all the current economic data… If they’re just terrible and noone likes them or if the car market is tanking more broadly.

  • Mark Bayly 1 year ago

    Governments should stop manipulating money markets with low interest rates. Inflation will kill everything soon Money will have no value. Stop destroying the country to buy votes from the whole planet

  • Carlos 1 year ago

    Everybody knew that more the bubble (and interest rates) stretched out, more painful the correction would be.
    Thank toTrudeau’policies, with the bank ok Canada partnership, we are now in a hole.

  • Mark 1 year ago

    I wish BD would provide a link to the primary sources for quotes and reports cited 🙂

    • MC 1 year ago

      I don’t know why I see this comment on every news site and it always need to be repeated so often—reports are given to journalists with embargoes by email so they can write about them before the report is released (if it’s being released at all).

      There’s nothing to link to when it’s written, because they call or email them so they can ask questions about the reports before the public gets it. This is like watching their interview with the Bank of Canada governor and then asking, “but where is the link to the Governor saying this?”

    • Uros 1 year ago

      I linked full report with numbers below, but here is summary report/press release

  • Haider 1 year ago

    House prices will rise due to the lack of supply of homes, the increase in the number of newcomers to Canada annually, and the weakness of the infrastructure to open a new construction areas.

    • MC 1 year ago

      I don’t get the point of Canada right now. If you’re looking for a high quality of life but actually want to afford a home, you can move anywhere in Europe. Come to Canada and you might make more money, but you’re sleeping in a cot with 4 other dudes.

    • Average Man 1 year ago

      Then you’re looking at a collapse in Canadian social stability. Choose your collapse I guess?

    • Yoroshiku 1 year ago

      There is no supply issue. Speculators, money launderers and real estate investors have completely distorted the real estate market in and around Toronto & Vancouver.

  • G.P 1 year ago

    Toronto and Vancouver do not represent the real estate situation in many other cities.
    Unfortunately other market gets screwed because some pointy headed bank guy raised interest rates to cap the price of $600k one bedrooms in downtown Vancouver.

    • Average Man 1 year ago

      Toronto’s problem has now spread to the real estate market in all of Southern Ontario: London, K-W, Guelph, Hamilton, Niagara, Peterborough, Barrie, even places like Brantford and Woodstock. Southern Ontario makes up about 1/4 of the population of the country. It’s a real problem.

      • W8 1 year ago

        Golden Horseshoe will transition to the Fool’s Gold Horseshoe. Whats’s the justification for majority of YYZ satellite cities priced >$500k?

        In Niagara, QTY of rentals has never been higher – over 700 now just on Historically there’s been 150-250 available. There’s only 10-20 tenanted per week. Add on Kijiji and FB Marketplaces inventories.

        Rent’s peaked in Niagara in summer 2022. CorpLL’s now offering 1 month free rent incentive(12+1).

        These new developments have so many “For Lease” and “For Sales” within close proximity – you can inspire “inverse bidding wars” and get multiple LLs to bid for your tenancy.

        Looking fwd to Q1/Q2 2023 when the “investors” get an education in markets and how price is determined by liquidity rather than housesigma estimation.

  • Joe 1 year ago

    “We think a further rollback of outsized price gains is in the cards”—
    They won’t even say “we see prices dropping”. They see their role is influencing sentiment, not informing people.

  • Tylutanic B. 1 year ago

    This is all on boomers, government finance people, Wall Street, Bay Street, and Justin Trudeau’s tenure. Canada banks have been whoring themselves to Asian money for the last 20 years. BC had Gordon & Christie making deals with Chinese investors using HK as the laundry mat. Read Sam Cooper’s Book. Boomers caused all of this. Look for the Bay street superstar friends to the Liberal party of Canada. Pays to be close to the right politicians when playing monopoly on this scale.
    Then along came the MMT zealots who believed money can be freely printed, and handed to Bay street and Wall street in the USA. Who quickly created zombie tech companies inflating their valuations and pretending they were cutting-edge real.
    Now the great unwinding is full on. Hopefully, the right people pay for their transgressions. Including criminal prosecutions.

    • Sharon Sommerville 1 year ago

      Exactly why are boomers to blame for Canada’s real estate nightmare? I am a boomer and I am not responsible for this mess; central banks around the world thought that QE was a grand idea which pumped virtually interest free money into real estate speculation & successive governments since since 80s that did not protect Cdn. real estate from money laundering are more likely the culprits. I have read Sam Coopers book, it is excellent.

  • Fortune Teller 1 year ago

    Canada MUST be strong and drop rates back to 0% to pump housing.

    It is all Canada has got. Justin MUST bail out house buyers and keep this going.

    • Peter 1 year ago

      Ya, Okay there..

    • Jim 1 year ago

      That would be like throwing gas on a fire hoping for a different outcome than more fire ???

  • Woolsock 1 year ago

    What a mess we vain and greedy little beavers have gotten ourselves in. Unless one bought more than 10 years ago, and borrowed a fairly reasonable amount to do it, there really isn’t going to be any place to hide from this. RE will pull down otherwise fruitful sectors of the Canuck economy as it slowly drowns.

    Months ago I was all like “me getting popcorn”, but frankly we can’t get through this part fast enough.

    • Average Man 1 year ago

      With you. I know I will get hurt in a crash, too. But honestly, it’s a moral imperative at this point. We all deserve this pain as punishment. The whole country should remember what pain feels like. Having the 2008 crash mostly miss us wasn’t actually a good thing.

  • Shashi Kapoor 1 year ago

    The bubble will never bust. The prices of the new homes, due to inflation and higher labour cost, will be more than properties on resale. It surprises me to justify houses are better quality and lesser in value in the US

  • Mack 1 year ago

    Solution to this bubble is simple. Increase down payment requirement for investment property. Do you want to buy your second house as an investment? Fine pay double down payment. Pay down payment of 20% instead of 10%. If you want your third, fine pay 40%, so on and so forth. Immediately, you will see fewer investors abusing lending facilities. They will buy whatever they could afford instead of hoarding the real estate and passing their cashflow problem to renters.

  • Daytora 1 year ago

    Honestly, at this rate people are gonna emigrate faster than immigrate. I have at least 10 friends who graduated from U of T the same year as me who has 5+ year work experience that left Canada last couple of years. Let me add that some of them are raised and born in Toronto. People who was so local that I was shocked/sad when I heard they are moving away for work.

    • JCH 1 year ago

      Absolutely – us included. I didn’t go through life working hard to never be able to buy a house, so I’ll be leaving Canada in a few years to do so.

      And, I don’t know how Canada continues to lie to immigrants and suck the life out of them once they arrive with our shocking cost of living and unaffordable housing. Smart, well-qualified people.have so many better options than to Canada.

  • Daytora 1 year ago

    Honestly, at this rate people are gonna emigrate faster than immigrate. I have at least 10 friends who graduated from U of T the same year as me who has 5+ year work experience that left Canada last couple of years. Let me add that some of them are raised and born in Toronto. People who was so local that I was shocked/sad when I heard they are moving away for work.

  • Taylor Hulsmans 1 year ago

    Michael Hudson gives a brilliant seminar about how the mathematical error of fractional reserves at interest inevitably causes ” The repayment of the debt ends up diverting spending power away from goods & services and ultimately leads to the forfeiture of property to the creditor”

    and does it with archaeological evidence found from 1900BCE in Sumer and Babylonia

    It is a Faustian bargain to have “the actual creation of money always involv[ing] the extinsion of credit by private commerical banks”
    1982 letter to money research Byron Date
    from US Treasury Counel Russell L Munk.
    from ‘thin air’

    as it makes housing prices the de facto primary lever of monetary policy in what ever nation practices it. Decreasing housing prices means less $$ printed per ‘loan’ which is a dis inflationary mechanism and, since at positive interest rates debt > credit, makes it harder to find new money to service old debt, a economic contractive factor

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