Canadian real estate prices have been distorted by a massive overextension of credit. Just how bad has it become? The view is always tricky from inside the bubble, so let’s compare them to our neighbors down south. Comparing prices to the frothiest US cities, we can see how odd Canadian real estate has become. The rate at which Canadian real estate prices have grown dwarfs even the frothiest of US cities.
About The Data
Today we’ll be looking at home price growth in Canadian and US cities, using two home price indexes. For US prices, we’ll be using the Case-Shiller Home Price Index (CS HPI), the pioneer in home price indexing. For Canadian prices, we’ll be using the Teranet-National Bank of Canada House Price Index (TNB HPI), which is modeled after the CS HPI. Instead of comparing direct prices, we’re going to be looking at the percent change from the year 2000. The prices will be compared to March 2019, the last available month in the CS HPI.
The Canadian cities we’ll be looking at are Toronto, Montreal, and Vancouver – the 3 largest markets. The US markets used will be San Francisco, Los Angeles, New York City (NYC), and Seattle. The first two are being used because UBS ranked them as bubble cities, with unsustainable price growth. NYC and Seattle are included because people in Toronto and Vancouver like to compare their cities to those, respectively. NYC and Seattle are both also considered to be high price growth markets.
Canadian Real Estate Price Growth Is Absurd Compared To The US
Since 2000, Canadian cities have experienced absurd price growth to major US “bubble” cities. Toronto real estate prices have increased 239.9% as of March 2019, when compared to prices in 2000. Montreal real estate prices have increased a more modest, but still large, 189.08% over the same period. Vancouver, which recently lost the throne to Canada’s most expensive real estate market, increased a whopping 315.58%. None of the US cities have shown that kind of increase. These numbers are inflation adjusted.
Canadian Real Estate Price Change
The percent change for real estate prices in Canada’s largest real estate markets from January 2000.
Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.
Toronto Real Estate Prices Grew Over 133% Faster Than NYC
Toronto real estate prices are some of the fastest growing in the world. When compared to Los Angeles, price growth was over 33.67% higher from January 2000 to March 2019. Over the same period, they grew 45.27% faster than prices in San Francisco. Prices grew 61.01% faster than they did in Seattle. Toronto demolished NYC for price growth, growing 133.39% faster. Toronto prices are some of the fastest growing in the world until recently. UBS ranks it the third largest real estate bubble, just behind Hong Kong and Munich.
Toronto Real Estate Price Change
The percent change for Toronto real estate prices from January 2000.
Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.
Vancouver Real Estate Prices Grew Over 207% Faster Than NYC
Few places in history have ever seen real estate prices grow as quickly as they did in Vancouver. Vancouver real estate prices grew 75% faster than those in Los Angeles, when measured from January 2000 until March 2019. Prices grew 91.10% faster than they did in San Francisco during the same period. Vancouver crushed Seattle, with price growth that was 111.81% faster. New York City isn’t even close, with Vancouver real estate prices rising 207.02% faster over the past 19 years. UBS listed Vancouver just under Toronto on their bubble index, and you can probably guess why.
Vancouver Real Estate Price Change
The percent change for Vancouver real estate prices from January 2000.
Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.
Montreal Real Estate Grew Just Over 5% Faster Than LA
Relative to Toronto and Vancouver, Montreal real estate prices are making a relatively stable move. Montreal real estate prices grew just 5.43% faster than Los Angeles prices from January 2000 to March 2019. Canada’s second most populated city outpaced San Francisco by 14.50% during the same period. Prices grew 26.90% faster than Seattle, and 83.95% faster than New York City. Montreal did not make any of the bubble lists, and prices grew at less than half the pace of a typical Canadian city over the past 5 years.
Montreal Real Estate Price Change
The percent change for Montreal real estate prices from January 2000.
Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.
The Canadian economy is much more dependent on real estate than the US has ever been – even during the 2006 peak. Residential investment represents just under 8% of GDP in Canada, almost twice that of the US. This means the business of buying and selling real estate is very important to Canada.
So important, high prices are needed to continue to drive producer incentive to build. When prices fall, so does the supply developers are willing to build – as Vancouver is seeing. Consequently, the Canadian government has been willing to inject money to prop up prices, and turn a blind eye to billions in questionable purchases in Toronto and Vancouver. Of course, that brings its own issues in driving price growth as well.
Like this post? Like us on facebook for the next one in your feed.
Love when everyone says “Toronto is like New York City!”
You mean because over the next 10 years prices will still be lower than they were in 2017?
You don’t even have to go to NYC to see Toronto prices can stay still forever. After prices in Toronto peaked in 1990, they didn’t hit that level again until 2012. People go full retard when they try to remember Toronto prices.
They look at the movement from 2015 to 2018, then say everyone always thinks its a bubble! They’re all wrong, prices haven’t dropped! Yeah, you’re looking at a three year window, and comparing it to a few months afterwards. You need time before the waster income is removed from the general economy.
Jason,
It wasn’t 2012 it was 2002. A house in Toronto in 1990 was about $220,000. A house in 2012 was much 3 times that.
I’m not surprised to see growth % to be higher than the big 4 U.S. cities since 2000. Canada came out of a pretty steep 90s recession where our real estate was way undervalued compared to the U.S. and so the price growth made up for the 90s recession, then continued on to its current values. The 2008-9 U.S. recession didn’t make much of a dent here, so the market comparisons are not apples to apples, anyway.
True. But we also did not get back to the 1990’s inflation adjusted peak until 2012. Which on this graph shows that prices were at 105% compared to the base year of 2000. So they doubled during that 12 year period proceeding a correction which had ended 4 years earlier (1996). Between 2012 and 2017 we grew another 150% in a 5 year period. Los Angelas pumped out a 150% return in the 5 year period between 2000-2005.
Good point. Is this not a glaring example of what globalism does to we, the great unwashed?
No city region in the USA holds 25% of the country’s population. Its bound to affect the cost of RE at a base level. Same thing happened in Montreal from 1850-1910 when the city population blew up. My ancestors had eight people living in a one bedroom apartment at the time. Luckily, things are not that bad now.
1990
Canada – 27.69
Toronto – 2.29
8.27%
2018
Canada – 37.06
Toronto -3.00
8.1%
As in the late 80s, the booming market has attracted workers, but as the recession kicks in and the jobs start to disappear, they will magically vanish as quickly as they appeared.
And this time around, with more than 20% of the economy tied to real estate, and record debt levels, the effect will only be more exaggerated.
When you put fungus in a jar with sugar, it will start gobbling it up, and the fact that it’s mostly gone does not slow it down. The government and banks are sprinkling sugar on the market to try and keep the party going, but it’s nothing more than a proverbial sugar-coating.
Blue has been right all along. Look at what’s happening in Vancouver. The dead-cat bounce, which is in fact a world-wide phenomena at present, is proportionate to the size and duration of the bubble.
An irony with nasty narcissists such as MM, is that like Trump, they project their own psychology onto the world, and when they malign others, it’s a kind of twisted confession, the constitutional lack of empathy for anyone else dictates this behaviour, however it comes out, they are only ever talking about themselves.
Not city of Toronto…Toronto region. The population of the city of Toronto is irrelevant…
Personally I appreciate your comments. Usually they tend to be interesting and insightful but once in a while something like this pops up. Could you clarify:
a) Why the population of Toronto is irrelevant for the Toronto RE prices while the population of GTA is relevant?
b) More importantly, could you provide any real evidence supporting the thesis stating that cities with higher percentage of the country population must have more expensive RE?
I am always open to learn something new. And by the way, the population of GTA still is nowhere close to being 25% of Canada total.
Canada has always been highly concentrated in a handful of regions…we were never like china with forced urbanisation (how’s that working for the sino mirage btw?) your point is moot and has been recycled each time there is a pump and dump. But this time is different right? It always is until it isn’t and some excuse is used to explain aways. Tock. BD4L.
The average family income in 1975 was $50k and the average house in Toronto was $60k. Today the average family income is $70k, and the average house in Toronto is $700k. That seems like serious stagflation to me, and if that sustainable (sustained over a long period of time) we are in serious trouble and the government is either helpless or clueless.
It’s easier to launder money in Canadian real estate than the USA.