“But wait… Canada doesn’t have a housing bubble. Our economy has rebounded steadily since 2008, and our home prices are based on their real value!”

when will the housing bubble burst canada

“Banks aren’t lending mortgages to people who cant afford them.”

when will the housing bubble burst canada

“We live within our means here.”

when will the housing bubble burst canada

Let’s take some time to discuss these 3 common misconceptions when people consider buying a house in Canada.

There’s absolutely a bubble, and it’s going to burst

when will the housing bubble burst canada

In the years since 2008, Canada has seen a strong rebound in home prices. The country has been heavily influenced by the surging markets of Toronto and Vancouver. In 2011, the average price of a home in Canada was $352,000. As of today, the average home price in Canada is above $500,000.

In 5 years, the average home increased in value by over $150,000.

That is not sustainable.

These prices cannot, and will not, keep going up. Economists predict a drop in Canadian home prices by 15-30% nation-wide in upcoming years. And they’re already testing the Canadian banks to see if they can survive that drop. (They will btw… you? We’ll see)

Swiss Bank UBS performed an extensive study into Vancouver’s housing market. Their conclusion? The risk of a housing bubble in Vancouver is unmatched on the planet.

That’s right, nowhere else on earth is there a more financially dangerous place to buy a home. Toronto is not far behind. And though it’s true some of this market increase is due to foreign investors trying to dodge taxes in their home countries, they are only responsible for about 10% of the market increase. The rest is from average Canadians paying more for houses than they can afford.

Which brings us to point 2:

You can’t really afford that mortgage

when will the housing bubble burst canada

“Hunnee! Looks like we can afford the monthly payment! We finally have the house of our dreams!”

Whoa whoa whoa, wait a minute.

Economists throughout Canada are warning that first-time home buyers are in a very precarious situation in this housing bubble.  Banks are lending you money based off the record low interest rates that the Bank of Canada has regulated.

Its almost free to borrow money in Canada right now. Rates like 2.50% and 2.75% fixed rate mortgages are not hard to find.

The problem? Once again, not sustainable.

When interest rates go up, and they will, your monthly payment could go up by 100-300$ a month easily. When you’ve already maxed out your monthly budget to afford this dream home, you will not be able to afford an extra couple hundred dollars per month on your home.

One more thing on this point. If your house suddenly drops in value by 15-30% in a few years (as projected) you could very well end up owing more money on your home than your home is worth. That’s a problem. Its called foreclosure. It happens a lot in climates like this.

You are not living within your means

when will the housing bubble burst canada

Stats Canada released a major warning to Canadians in September about our spending habits. The study exposed that Canadians on average owe $1.68 for every 1.00$ of disposable income they earn.

That is a staggering 168% debt to income ratio. The vast majority of this debt came from, you guessed it, mortgages.

This is the highest debt to income ratio of all the G7 nations in what is now being called a “World-Beating Borrowing Spree”.

Once again, this is not sustainable. We can’t keep spending money like this, and we won’t keep spending money like this. Its basic math.

That’s all folks?

In closing, its not all bad news.

Part time jobs are increasing, Donald Trump’s election win is boosting the markets, and all our trade agreements with America get to be renegotiated.

Oh wait, still bad news.

But, in all seriousness, governments throughout Canada are desperately putting through legislation to slow this crazy housing market down so that when it does lose stability, it won’t be as bad as it could be.

But, for now, it’s all of our responsibility to make wise financial decisions. Do your research. Make sure you can afford an increase in your monthly bills when interest rates rise. And don’t rack up debt.

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