Lack of Supply Driving Canadian Real Estate Prices Higher? “Puhleeze”, Says BMO

One of the country’s top economists is calling bullsh*t on the supply-price narrative. BMO chief economist Douglas Porter sent a client note disputing an inventory shortage. He thinks it’s important to “crush” two myths about Greater Toronto’s blowout home sales in March. Let’s dive into that take. 

Myth 1: Last March Sales Were Distorted By The Pandemic

Greater Toronto home sales had a rocketship strapped to them, and many are dismissing it as a data skew. The assumption is the pandemic slowed home sales activity in March 2020. A low number in March 2020, would mean the 12.3% year-over-year increase appears stronger than it is. Porter wants people to understand that is definitely not the case.   

Last year things were very busy for a month where a pandemic was breaking out. He said, “sales and new listings were surprisingly normal in March 2020 (before falling off a cliff in April). Activity in the latest month was incredibly strong by any metric.”

In fact, the sales in March 2020 were some of the strongest on record. “Sales were higher than any prior month, topping the previous record high in May 2016 by 21%. Listings were the second-highest for any month, behind only May 2017.” For context, May 2017 was the month after Ontario implemented a non-resident home sale tax. 

Greater Toronto Home Sales To New Listings

The number of new listings, compared to home sales.

Source: TRREB; Better Dwelling.

Myth 2: Home Prices Are Increasing Due To A Lack of Supply

High home prices are being attributed by many as a result of a shortage of supply. After all, supply and demand is the primary creator of prices, right? If you want home prices to fall, supply just needs to rise above the level of demand. Everyone who’s taken Econ 101 feels the need to constantly explain this for some reason.

“How to put this politely? WRONG,” says the noted economist that probably doesn’t need you to remind him of what you learned in Econ 101. He found new listings for homes in Greater Toronto are actually much higher than usual. “New listings in the past six months have been running 30% above year-ago levels (ie the pre-pandemic pace).” 

Supply and demand-driven price growth only works with rational players. Currently, market mechanics are broken due to panic-driven purchasing. Fear is not a fundamental. “The only way in which supply is weak is in comparison to white-hot demand,” says Porter. 

Before the complaints about Porter being anti-supply, he’s been very pro-supply. He has been banging on the supply drum for the past decade, especially in Greater Toronto. He has on many occasions said real estate price growth has been driven by a supply shortage. This time is different. 

The economist is joining others in saying this is exuberance driven. In an exuberant market, it doesn’t matter how much supply appears. It will be crushed by the fear of missing out on price gains or being locked out of the market. This is a panic-driven hoarding spree, started by the Bank of Canada. It’s more like toilet-paper hoarding than it is an issue of a supply shortage.

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  • PK 3 years ago

    Views from the Six. LOL.

    It’s all good. My apartment in Manhattan is the same value as a much smaller apartment in Toronto. The next Manhattan is always more expensive than Manhattan.

    • Average Man 3 years ago

      Honest to God. Once you look at the relative salaries in NYC vs. TO, New York is more affordable BY MILES. I didn’t believe it until someone told me to look it up.

      • Doomcouver 3 years ago

        It’s unbelievable how many people are still saying we’re not in a bubble. How big does it need to get before these bulls will finally flip to the other side? Almost all the market data in Canada is screaming bubble right now. RE bulls it’s time to throw off your recency bias and protect yourselves, the pandemic bounce is probably your last chance.

    • Jimmy 3 years ago

      Everywhere is the next Manhatten.

  • Ercolino Ingratta 3 years ago

    Bank – here’s 1 mill, keep it for 5 years for free,

    • Doomcouver 3 years ago

      More like…

      Bank – “here’s 1 mill, keep it for 5 years for free… then when you have to renew we’re jacking your rates up, pushing you into insolvency, and taking your house”

      • The Truth Shall Set You Free 3 years ago


        Bank – “here’s 1 mill, keep it for 5 years for free…then when you have to renew as we know you’ll be stress tested and can’t go anywhere else we won’t give you a competitive rate but the posted rate plus as we can pretty much charge you whatever we want since you won’t be able to qualify anywhere else. This will seem like we’re jacking up your rates pushing you into insolvency but it has nothing to do with us. Blame the government we’re only the messenger.”

  • SH 3 years ago

    I don’t see how more supply will help so long as offshore criminals are permitted to snap up entire floors of Canadian condos sight unseen and leave them empty.

    • Doomcouver 3 years ago

      More supply would help in a way… but whenever a mean reversion in investment demand happens the unnecessary extra supply will cause an over-correction on valuations (aka. housing correct to below fundamental prices). The goal should be to restore housing to a reasonable multiple of local incomes and rents. Too much supply undermines that goal.

      The best pragmatic approach is multi-pronged: more purpose-built rentals, strong disincentives for price speculation, and yes some strategic increase in supply.

  • Jamastra 3 years ago

    As much I’d love to see a correction I don’t see how it is going to happen. If there is a correction it will be small (lets say 20%) and then it will recover within a couple of years.

    Bottom line:
    -Look at the Century Initiative. They want to increase Canadian population to 100 million.
    -Those people aren’t going to move up North or to the Prairies or to Quebec.
    -They will move to Southern Ontario, Vancouver, and Halifax (the only places in Canada with moderate climate)
    -Everyone who currently owns a house wants it to continue increasing in value. Unfortunately these are the majority of voters and politicians too.
    -The home owner cabal will therefore do everything possible to pump their Ponzi: zoning restrictions, greenspaces to artificially limit supply, cutting social housing, low interest rates, 100 year mortgages, programs to help new buyers, an endless stream of immigration, banning innovative building methods, bailouts to the homebuyers/banks if their values drop, etc.

    • Jimmy 3 years ago

      There is no shortage of supply.

      Check cmhc housing completions and stats can population growth.

      Sure immigration may ramp up again but maybe not no one knows.

      I think we are more likely to see people leaving the country if this madness keeps up. If I am going to have a low living standard might as well stay where I am or and in some cases go back home for 1st and second generation. Very unfortunate.

      • marmota 3 years ago

        How can there be no shortage of supply?

        How many families living in condos downtown? how many freehold semis avaialable or even townhomes?

        Only a very small percentage of condo dwellers trying to move up into larger properties is already generating huge pressure. Most have to move outside the 416/905 and many even out of the GTA.

        There has always been a short supply of certain types of units in desirable areas, but now it seems there is a shortage of supply of most units in most areas

    • Doomcouver 3 years ago


      – increasing Canada’s population in any drastic amount won’t happen with high property prices. Many immigrants are already skipping Canada due to housing-related concerns, and if it keeps going up it’s only going to get worse. Contrary to popular belief, there is not an endless pool of wealthy individuals that will come, it’s mostly working class people that need affordable housing.
      – not all homeowners want prices to keep increasing. In interviews with a lot of Canadian homeowners they are alarmed by high prices, and not universally supportive of the price acceleration. For example, anyone with kids would logically want prices to be reasonable so their children can afford to live here. Not all homeowners only care about themselves (though some do).
      – There is going to be a shift in our lifetimes in politics from house-heavy boomers to housing-starved millenials. As that happens, expect to see a shift in their priorities. There is not an endless appetite from a policy standpoint to keep the ponzi scheme going. It’s already becoming more politically popular to attack sacred cows like the primary home tax exemption, and more aggressive taxation on speculators and high net-worth individuals. That trend is only going to continue.

      Either the bubble is going to pop on its’ own, or it will pop in the years to come due to increasing scrutiny by all levels of government regarding productive use of Canadian land. The housing market is on borrowed time, it’s a matter of when, not if.

  • Little Birdie 3 years ago

    If looking at the classical stages of a bubble, we’re well into the euphoric stage. During the dot-com bubble, people decided they could make more money day trading IPOs than going to their day job.

    Sound familiar?

    Leaves me with two questions:
    1. Are we nearing the crest of the bubble or is this instead the start of high inflation due to QE (this could go either way), and
    2. If this is a bubble, what’s going to be the catalyst for the next stage (aka crisis / burst)?

    • The Rational Economist 3 years ago

      The public narrative is shifting considerably in recent weeks. There is an increase in institutions trying to hop on the “We always knew it was a bubble” bandwagon to save face. This will most likely spillover into the average Canadian over time at an increasing rate. Bubbles start to deteriorate when people individually start considering the previous herd behavior irrational and stepping away on their own. This needs to happen for the marginal home buyer to be significant. Anecdotal stories indicate that may be happening at at increasing rate, although we won’t know for sure until we see sold prices reflect list price or lower on a regular basis. It’s possible and likely that government may try to prop up the market as this plays out to save face. This is deeply systemic and much, much worse than it was in the USA a decade ago. No one wants the finger pointed on the way up for taking the punch bowl away, and no one wants the finger pointed on the way down either.

    • Paul 3 years ago

      Well in my opinion we are already seeing higher than normal inflation… if your inflation is being driven by housing and materials to make and repair housing are inflated… snake eating its tail.

      And almost every marker you can imagine for a bubble is present sounds like it’s both to me.

      In a patient death in the Canadian health system the death certificate never just says heart attack. It always says cardiac arrest due to complications…

  • GTA Landlord 3 years ago

    Supply has always been a lazy comparison. Building more also doesn’t make prices lower either. Why would a developer try to make a product that’s cheaper?

  • V 3 years ago

    REALTOR were also creating the bidding wars and maiking it look like there was low inventory. Everytime I tried to buy a house they were all holding offers. I told them all I ain’t playing your games and ended up putting my money in another investment. Think about it, when a realtor tells you the market is hot and tells you to come in ” high and hard” like that idiot Al Sinclair from Remax on CP24 on hot property, the client over pays by 200k. How much are the realtors making on 5%? An extra $5,000 each. Why do you think there holding offers. People are falling for these shady realtor tactics. Stay clear of anyone telling you to come in “High and Hard”. The only thing getting high is there commission. Don’t be fooled by these morons!

  • Smug Canadians 3 years ago

    My my. What stupid people we have in this country. We have a Bank of Canada Gov throwing gas on a forest fire and at the same time some, somewhat smart people, thinking we have a supply shortage. Excuse me while I throw up a little. I used to think Canada was maybe a bit smarter than the average country; but now I’m convinced, we’re a lost cause. I’m already telling my Uni student, daughter to try and get employment in another country. And, I was a very proud Canadian. This place sucks!!
    Our greatest generation, that fought for us, and our freedoms, must be rolling over at this lot of simple-minded souls.
    You parents that are actually lending money to your kids to jump into this forest fire, should be…..I stop there!

    Night night!

    • Ashley 3 years ago

      Stupidity at all levels which is why Canada doesn’t have global businesses and none wants to invest here. Canada is just keeping it afloat by having people trade houses with each other.
      I 100% agree with you, it is better to look for job opportunities else where, just south of border with higher salaries while cheaper daily living and houses.

  • Smug Canadians 3 years ago

    Are we really this stupid? Do some people think prices can keep going up??? People do go to school, right?

    • Average Man 3 years ago

      The immigrants, Smug. The immigrants.

      • Doomcouver 3 years ago

        The pandemic blew a hole in the immigration narrative a mile-wide. Near-zero immigration and rapid price acceleration. The data points to average house-greedy Canadians driving broad price inflation, not immigrants.

        • SH 3 years ago

          The pandemic did not blow a hole in the immigration narrative.

          Immigration was down but interest rate cuts combined by low inventory (induced by the pandemic) picked up the slack.

          Just because factor A temporarily picked up the slack for factor B, does not mean that factor B wasn’t or isn’t an issue.

          Immigration, refugee, and TFW intake has exploded since 2015, with the added demand greatly contributing to pushing up prices prior to March 2020.

  • Herry 3 years ago

    POS Turdo refuses to kick the POS chinese out !!!! THIS, is a major problem !!!!!!!!!!!!!!!!!!!!!!!!

  • Joe B 3 years ago

    Market mechanics are broken because of Supply Manipulation, not Supply Shortage.
    Canadians are living through one of the greatest price fixing schemes of all time but no one talks about it because it is beyond Econ101. Housing is being monopolized by Investors and Speculators who control the inventory and inflate pricing in many markets to their advantage. If these activities were more controlled/ regulated, market mechanics would be repaired.

    • marmota 3 years ago

      When controls and regulations fail, institute more controls and regulations.

      Imagine we doubled the supply and everyone had access to a unit that does not include 250k of built in regulation cost built in (municipal and provincial levies, development charges, education charges, HST, tarion, ontario land transfer tax, etc, etc. etc.):

      1) First every new unit would be significantly cheaper (more affordable)
      2) Investors and speculators would not be able to “monopolize”

  • dL 3 years ago

    You can put lipstick on a pig, but it’s still just a pig.. too many greedy little piggies in this market.. and i smell bacon.

  • Herry 3 years ago

    Whaddaya know, another bankster using his sphincter to do the talking. Lack of supply ?? I don’t think so. GREED !!!!!!!!!!!!!!!!!

  • sandip 3 years ago

    There is one thing to tell.

    every one here knows that shortage is manipulated by so called REALOTORS , BANKS and our Bank of Canada governor., to keep the country afloat during pandemic as virtually all industries are on halt since last one year..

    So question arise , in this time where prices are so much high compare to last year, naturally all investors trying to sell their investment in real estate to get the maximum return.. so that means current buyer in the market seems genuine buyer ..if they are genuine buyer then why they are paying thousands of more dollars on over asking … This some how translates that there is really a supply shortage ?? because genuine buyer who hard earns money seems thinks twice before giving thousands of over asking..

    so supply demand equation may be right or may be wrong.. it is hard to understand from end buyer perpective..

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