Canadian Real Estate Prices Have Synchronized, Meaning Bubble Risk Just Soared

Montreal is the next Manhattan. Or maybe Winnipeg. Sorry, it’s definitely St. Johns. Wait… what’s happening? Real estate prices are rising pretty much across the country. Canadian real estate prices are showing the highest level of price synchronization in years. This is when markets, regardless of location, begin to show similar levels of price growth.

Asset price synchronization typically indicates market participants have become irrational. That’s not just a problem because high prices impact affordability. It means all markets are more likely to be vulnerable to a single shock factor. It’s like putting all of your mortgages in one basket. 

Efficient Markets and Synchronization Risk 

We need to get nerdy for a second, so bare with us. The efficient market hypothesis is the belief asset prices reflect all available material. If someone mis-prices an asset (sells too low or too high), it’s just an outlier the rest of the market will fix. Therefore, the price is always correct. It’s never wrong, because there’s not enough irrational players to skew the market. As ridiculous as it sounds, it’s the most common belief. Despite foundational economists like Adam Smith and John Maynard Keynes saying irrational behavior has a significant impact on markets, and that’s why bubbles exist. 

In behavioral finance, they believe we’re just chimps in pants. We’re prone to making mistakes, and people will mimic each other’s behavior. One of those mistakes is knowing something doesn’t make sense, but pursuing it anyway. In this case, people chase the same opportunities as their friends, without rationale… like buying a Nickelback album. This is called synchronization, and it results in the mis-pricing of assets.

The more synchronized markets are, the more likely people are disregarding rational behavior. Markets may have common factors, but they’re all unique. For example, a high demand housing market shouldn’t rise with a market that’s losing people. Synchronized behavior doesn’t consider those factors. Usually every market will have a similar reason for why prices are rising or falling together. You think home prices should rise in an area with a declining population, because debt is cheap? Cute.

How Do We Identify Synchronization?

Okay, so how do we identify these risks? A lot of ways, but today we’re going to look at price growth synchronization. We’re going to look at the relationship between national, city, and rural. There’s 46 markets used in today’s analysis, grouped by economic region. For institutional subscribers, individual cities are already on the portal. We’ll also share a further breakdown on Twitter next week, for our Twitter fam.

Note the index is experimental right now, but we’ll be fine tuning it for more regular updates.

How do you read the data? We used a standard scale that starts at -1 and goes up to +1. If the correlation coefficient is -1, it means there’s a perfect negative correlation. In this case, that would mean a regional market showed price growth that was perfectly inverse to the national growth trend. That is, if national home prices increased, the market dropped perfectly in sync, and vice versa. 

If the correlation coefficient is 1, it means the market is highly synchronized with the national price movement. If national prices rise, so does the regional market. If national prices fall, so does the regional market. This would mean the market is likely to be emotionally driven. 

There’s also degrees of correlation,  depending on where the correlation coefficient is.


  • Very Highly:   0.9 to 1.0 
  • Highly  0.7 to 0.9 
  • Moderate:  0.5 to 0.7
  • Low:   0.3 o 0.5
  • None found: 0.0 to 0.3

Inverse Correlation: 

  • None found 0.0 to -0.3 
  • Low   -0.3 to 0.5
  • Moderate -0.5 to 0.7
  • Highly  -0.7 to 0.9
  • Very Highly   -0.9 to 1.0

Canadian Real Estate Prices Show High Synchronization Risk

Canadian real estate markets were the most synchronized since the Great Recession. Price growth of markets printed a correlation coefficient of 0.97 in January. This is the most highly synchronized the markets have been since June 2010. The index only became highly synchronized in September 2020, and very highly in November 2020. If you’ve spoken to a Canadian, you’ve probably realized they all think they live in the next hot market. Even the markets with negative population growth, and fleeing young people.

Canadian Real Estate Synchronization Risk

The degree of synchronization between National price growth, and regional growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Ontario’s Suburbs Show High Synchronization Risk

Ontario’s real estate markets have seen this level of synchronization recently. It’s a little different this time though. The market’s print was 0.95 for January, indicating it was very highly synchronized to the national trend. The market became highly synchronized in Aug 2020, and very highly by November. This isn’t as distant of a phenomenon for Ontario, with these levels last seen in 2018.

Ontario Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Ontario real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

One big difference is Toronto is largely left out of this trend this time. The city only printed a 0.78 score for January, the lowest level since November 2019. As recently as May 2020, it showed a 0.99 score. Removing Toronto from the index highlights how much of an outlier the region is. 

The spread between Ontario’s least and most correlated market is 119%. This means the market most synchronized to the national trend is more than double the least synchronized. If Greater Toronto and Oakville are removed, the spread drops to just 17%. Both regions had very large surges in price growth in 2017. However, currently condo apartments are lagging in growth. Toronto’s condos printed the first negative price growth in years recently.

BC Real Estate Is Frequently Synchronized To The National Trend

BC real estate is frequently correlated with national price trends, unlike most regions. The market printed 0.93 in January, showing it was very highly synchronized. When Lower Mainland is excluded, that number bumps higher to 0.95. Once again, this is likely to do with slower city sales, especially in the condo apartment segment.  

BC Real Estate Synchronization Risk

The degree of synchronization between National price growth, and BC real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Greater Vancouver is a huge drag on the numbers, actually diverging from the trend. The region’s correlation coefficient was 0.82 in January, which is highly synchronized. It’s just not at the same level as the rest of the province. As recently as October 2020 it was 0.91, and was 0.99 in March 2020. Before the pandemic, it was basically driving the trend. The drop most likely has to do with slower condo apartment demand.

Quebec Real Estate Has The Highest Synchronization Risk Since The Great Recession

Quebec real estate is highly synchronized to the national price growth trend. The province’s score was 0.94 in January, indicating a very high level of synchronization. The level was last this high in June 2010. Prior to 2019, that was peak price growth for the region.

Quebec Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Quebec real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Prairie Real Estate Shows Highest Synchronization Since Peak Oil

The Prairies showed the highest synchronization with national prices in almost a decade. The index printed 0.93 for January, a level not seen since December 2011. That would have been right around peak oil prices.

Prairie Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Prairie real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Atlantic Canada Shows Highest Synchronization In At Least 16 Years

Even Atlantic Canada is showing synchronized price growth, which is rare. The region came in at 0.96 for January, indicating it was very highly synchronized. This is new territory, with no prior connection to national price growth since at least 2005.

Atlantic Canadian Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Atlantic Canadian real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Synchronization of asset price growth across markets is never a good thing, and there’s a reason it’s a whole branch of risk. It’s typically indicative of overly loose policy, excessive leverage, and irrational behavior. More important, it means people are piling into a similar type of risk. This means the odds of a single vulnerability impacting all markets increases.

While that sounds all theoretical, it gets less so when you realize even banks have begun to warn. BMO recently said if mortgage rates stay the same and prices continue, affordability reaches classic bubble territory next year. If mortgage rates increase to pre-pandemic levels, it also becomes a classic bubble. At least you’re all in this together.

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  • Han 3 years ago

    When shacks in the woods are going for the same price as condos in Vancouver, one of those are selling at the wrong price. I’m not sure Vancouver condos can be much more expensive when rental rates are falling, so…

    • Jerry 3 years ago

      House down the street went for $300k over ask, and I’m in the middle of nowhere BC. You couldn’t sell these houses two years ago.

  • Trader Jim 3 years ago

    I know this was probably edited for length, but the global real estate price synchronization comparison in the data portal launch really drives how odd and serious this trend is.

    National price synchronization has almost never occurred after a recession. It’s a sign of excess capital, and no where for the money to go. Economy firing on all cylinder stuff. The fact that it’s happening now, two quarters from when the recession is forecast to end, means there’s a common risk printing money cannot solve, that will be on the tail.

    In my opinion, this can only mean a second recession follows in a couple of years, similar to the 90s dual phase bubble.

    • Yusef Wess 3 years ago

      Excess purge. Easy setup. It’s going to boom before it cracks though. Who knows about prices though. Move to Texas from Vancouver a couple years ago, and it was the best decision I ever made.

  • Val Samonis 3 years ago

    Easily explainable by two factors: 1. US society collapse, millennials emigrating North and Canada attracting other top immigrants; 2. The oil/gas and commodities boom that will lift almost all Canadian boats in the next decade.

    • Liam 3 years ago

      You’re not explaining anything relevant, so clearly not that easy. Synchronization risk is never a good thing. There’s no “everything is now vulnerable to the same shock, so oil prices raise all boats”

      Either you meant to comment on something unrelated, or you should have a child lock on your keyboard.

      • Val 3 years ago

        Well, besides stupid childish attack, you have no arguments to refute my two points. They direct the move of the markets in Canada, The rest is insignificant.

        • SH 3 years ago

          If you make a claim like “Millennials emigrating North” (American Mills are emigrating to Canada? What?) it is for you to prove, not for others to disprove.

          And the US will continue to be the world’s dominant power for the remainder of our lifetimes.

    • Yusef Wess 3 years ago

      Bahaha. US society collapse. Good one. Not until we all learn to speak Chinese. Until then, there’s only one entertainment, tech, and banking hub.

    • Ahmed 3 years ago

      I have to missing something. Did you read the article?

    • philip 3 years ago

      174,000 immigrants in 2020 instead of 341,000 initially planned

  • Scott 3 years ago

    What’s the percentage of it is foreign money? Illegal?

  • Val 3 years ago

    When those two factors work together, synchronization is an inevitable consequence and means nothing. 🙂

  • Rob 3 years ago

    Five years after their separation, singer-songwriter Avril Lavigne and Nickelback frontman Chad Kroeger have sold their marital home. Records show the Sherman Oaks mansion just traded hands for $5 million, or $400,000 less than the pair paid for it shortly before separating in 2015.
    The synchronization of Avril and Chad can efficiently lower house prices.
    Solid thesis 🤘

  • Manroop Singh 3 years ago

    tax evasion surrounding real estate is a big issue. In GTA rent from illegal basements is gross and all in cash. One bed room illegal basement gives landlord 1300 dollars tax free and no one cares. It is not simply demand supply. It is policy paralysis, greedy flippers and unregulated unsafe cash cow basements. Realtors want their hefty commission so they do not care about average canadian. Black money from India pakistan mostly corruption money is eating up a good life for average canadian. As a country we need to constitute an inquiry commission to prevent going canadians homeless. Do u think that policeman, psw or grocery workers afford a place? It is big scam where ppl r getting laid off and house prices are rising.

    • Risk on 3 years ago

      Dead on Manroop.

      I have a friend who recently qualified with an A lender for an 850k purchase price. Homes are well over that in the GTA. The friend has no additional cash to make up the difference so what option does the friend have? Pick up the phone and call a mortgage broker who will have 2 solutions.

      1. Bridge the gap with private funds (high rate of interest) and put a second charge on the mortgage once the A lender finalizes the deal.
      2. Pay a 1 to 2% fee of the mortgage amount and have the shadow brokers fraudulently alter paperwork to get approved for a larger amount. Underwriters work with shadow brokers to get the deal done and pocket 10/20k cash.

      Why would a rational person do this? They do it because the market is irrational and thus they behave irrationally.

      Right now there is soo much greed built in the real estate market it is very dangerous for the little guy “IF” the market were to correct significantly. Trudeau will bail out the big banks and private lenders np. He will offer CRB to everyone else.

  • Bob Walter 3 years ago

    No worries, the government is soon going to intervene in this.
    Expect 40 year amortizations for youngsters and the ability to take 50K out of your RRSP for an easier downpayment.

    Everybody should be able to own a 2 million dollar home.

    • Val 3 years ago

      You might be right up to some 10-20 percent. But life is a game of probabilities that FI not depend on some narrow technicality like synchronization of not. 🙂 Canada is a relatively small economy, meaning that if most rich people in the world want to get in, and they are right because this is the best country in the world, and the USA comes up with some two trillion stimulus, and the millennials will not suffer another bout of trumpism and civil war, then your probabilities are clear :). The laws of economics are always stronger than any government or anybody’s wishful thinking. 🙂

    • Val 3 years ago

      The staggering decline in basic ethics in the rigged-to-fail game of lax regulation and robust dishonesty that so characterizes the US securities market is now the norm rather than exception! All that money will flee the Wall Street in search of real assets!

  • iAmDmAn 3 years ago

    I would like to gather a bunch of people who bought 250K over asking and ask them what led them to do this? I saw a home in Oakville that sold in October 2020 sell 5 months later (Mar 2021) for 460K more. Why would someone buy that home?

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