Canadians Are Buying Houses Like They Were Toilet Paper Last Year: BMO

Canadians are panic hoarding again… but this time it’s real estate and debt, says a Big Six bank. The country’s finance minister recently said they were “watching” housing, and its impact on first-time buyers. This has BMO senior economist Robert Kavcic wondering if they understand the issue.

Overheated markets are an issue that extend far beyond first-time buyers now. By addressing it as an issue for first-time buyers, they may be doing the opposite of what experts say to do. This has the bank wondering what kind of policies they might use to address the market — if any at all.  If they use the wrong one, some experts have warned it could actually send prices higher.

Canada Is Watching Housing Markets “Very Closely”

On Thursday, Canada’s Finance Minister said they were watching housing markets. In a press conference, she said “we are of course watching housing markets across the country very, very closely and carefully.” Adding “We are very aware also of the challenges that many Canadians face – particularly young Canadians – in buying a home, so it’s something that we’re looking at carefully.”

To the average person, that might not sound like much. However, it may reveal the government doesn’t actually understand how big the issue is. Kavcic warns, “this has run well beyond affordability issues for younger households.” 

Canadians Are Hoarding Real Estate Like Toilet Paper, It’s Not Just A First-Time Buyer Issue

Home prices are heated in virtually every market, and segment across the country. On average, home prices increased 4x wages in just February. The economist warns prices aren’t just up from pre-pandemic levels, but from last year.

The overheating isn’t due to an economic boom either. The economy has yet to recover from pre-pandemic levels, and isn’t expected to until next year. Instead, he observes prices are rising due to the “widespread belief that there’s nothing to stop the momentum.” Adding, “after all, we’ve been told repeatedly that interest rates aren’t moving.” 

The moral hazard has created the belief you can’t lose, and there’s going to be a perpetual shortage of housing. Investors, first-time buyers, and even recreational users, now believe the government will work to push prices higher. “Canadians in some markets are now buying houses, rural properties and cottages like they were buying toilet paper a year ago.” 

Canada Is Focusing Where It Was Told Not To Focus

The government is now in a tight spot. Increased media scrutiny has “been turned up to about a ten.” The reinforcement of cheap debt being here for a long time, pins the moral hazard on officials. Kavcic adds, “One wonders now, assuming that interest rates won’t budge, if and when Ottawa is going to swing the policy hammer, and what that might look like.”  

Many have warned the risk of focusing on first-time buyers can pump the market even higher. The IMF, RBC, and other organizations recently warned Canada should not help first-time buyers. While that may seem well intended, it would preserve market inefficiencies. Of course, what’s one of the few statements the government has made since “froth” became a national issue? They need to help young Canadians, who are most likely first-time homebuyers. 

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  • Average Man 3 years ago

    Can someone tell me, if it’s a bubble, why hasn’t it popped yet? What if it’s not a bubble. What if it’s a fundamental restructuring of Canadian society? And if that’s the case, why shouldn’t I get in at any cost, pay as much as I can convince someone I can afford, and be a winner in this new society? Rather than be locked into being a nouveau peasant?

    • Sam 3 years ago

      Everyone who is attempting to do it right will be swept away by MMT……like a reverse Titanic…where all the people on the life-boats end up drowning while those dancing away after the ice-berg was hit end up drinking, cavorting into the sunset……

  • Holton 3 years ago

    Let say if you live in a village and there are 10 houses and 10 families. Last year the village have total money supply of $100 so each house is $10. Now this year the mayer said lets print another 100 dollars. So now the total money supply is 200 and the number of houses are still 10. How much are the houses now? They are now $20 each.

    Now the above assumes no new wealthy family with extra cash are coming into the village. Also, imagine only a few families in the village got the newly printed 100 dollars? This is what is happening in Canada. Its about equality and changing the system instead focusing on the wrong issues.

    Can you see the main issue now? Its governments all over the world printing money. And the money is not shared equally. Housing prices will go up, what we should focus on is how the newly printed money are distributed.

    • The Truth Shall Set You Free 3 years ago

      100% correct. When the Federal Government pumps 3 x the normal amount of income into the economy while everyone is in lock down and unemployment is almost double what it was prior to the pandemic home prices rise along with everything else. So based on this knowledge, what happens when they stop and then unemployment rises further due to the fact that the wage subsidy is gone and companies were only keeping people working because the government was footing 65% of their wage of when the money floating around dries up on account that there are now 3 or 4 x the amount of people unemployed?

      • Ashley 3 years ago

        Well government would just buy the houses to keep real estate afloat and give them to unemployed for free so they don’t have to pay the mortgage.

    • Axel McLion 3 years ago

      Too simplistic. In reality, the top 1% owns the vast majority of the money and they aren’t buying up houses with it, so the inflation of the money supply is a poor explanation for housing price inflation.

      Most of the housing is being purchased based on massive amounts of DEBT which is available at low rates.

      So the best explanations for housing price inflation are: speculation, cheap debt, psychological willingness of average Canadians to accept a huge debt burden, and governmental promotion of all of the above.

      • Mike 3 years ago

        Great reply. I agree with your view point. The government gas messed up big time. The repercussions are not far. Not just the buyers who are taking ive huge debt but also other more cautious people who are not are going to suffer. It will start with a change in the taxes next year onwards.

  • Jake 3 years ago

    Just goes to show how uterly incompetent this Trudeau government is. The time to act was weeks or months ago. Panicked people frantically taking out million dollar loans is not a heathy thing.

  • Bryan 3 years ago

    A dilapidated cottage near where I live hasn’t had anyone in it for at least 20 years (I can’t imagine the mold party going on in that place). It was finally listed last week for $269 000, it sold in 7 days for $565 000 with 11 bidders. That’s over 200% of asking price…..during a pandemic.

    • Ashley 3 years ago

      Real estate is the best place to hide all of the fraudulent claims from CERB/CEWS/Small business loans. Paying any amounts of extra money to hide illicit income is never too much which would explain much of the irrational prices.

    • John Thunder 3 years ago

      I’d love to see it, what is the address so I can check it out on HouseSigma?

  • Danny 3 years ago

    BD comment section has really taken a nose dive past years.
    What happened to the guys that kept the riffraff in check? I miss having to reference investopedia just to understand the article and discourse.

    • Paul 3 years ago

      I can second that. They moved on.

    • John Thunder 3 years ago

      Most of the permabears (blue, etc) gave up and bought houses over the last few years and stopped posting here.

  • First time home buyer 3 years ago

    Like toilet rolls , we should limit 1 or max 2 properties per household (couple). Rest if they have money, they should invest in other options.

    • Raghu 3 years ago

      I second that, if we need to stop speculation and all the shit around RE, need to bring in a bill limiting 1 or 2 house max per household. At least we can put some end to greedy people out there, i also know it’s a pipe dream never gonna happen.

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