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The Canadian Housing Market Crisis: What’s Happening, Why It's Happening, and Where to Invest

By Josip Rupena

June 28, 2024 8 min read

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The Canadian Housing Market Crisis: What’s Happening, Why It's Happening, and Where to Invest

In many ways, the Canadian housing market remains the same as ever: hardworking individuals striving to secure a small part of the world they can call their own. However, the reality of homeownership in Canada has become increasingly challenging. Today’s buyers face unprecedented hurdles with sky-high mortgage rates, soaring home prices, rapid population growth, and a severe housing supply shortage. This has left many Canadians feeling frustrated and uncertain about their ability to enter or remain in the market.

What’s Happening in the Canadian Housing Market

Home prices in Canada have escalated dramatically over the past decade, making homeownership a distant dream for many. In Toronto, the average home price was $1,165,691 in May 2024, while in Vancouver, it was $1,348,624. This surge has significantly outpaced income growth. According to data from NerdWallet, the average income in Canada has only grown by about 20% over the past decade, while home prices in major cities have more than doubled (WOWA).

The limited supply of new homes further exacerbates this issue. Despite the highest number of active listings in Ontario for over five years, demand still far outstrips supply. This imbalance is driving prices even higher and pushing many potential buyers out of the market. Additionally, high interest rates set by the Bank of Canada have made mortgages more expensive, further reducing affordability (RBC Thought Leadership) (Norada Real Estate).

Rental prices have also surged due to increased demand. As more Canadians are priced out of the buying market, they turn to renting, driving up rents and reducing vacancy rates. For example, rental prices in Toronto have increased by 30% over the past five years, making even renting a significant financial burden for many.

Why It’s Happening

The crisis stems from several interrelated factors:

High Interest Rates: The Bank of Canada’s repeated rate hikes since 2022 have made mortgages significantly more expensive, curbing affordability. Currently, mortgage rates are at their highest in decades, leading to increased monthly payments for homeowners (Norada Real Estate).

Economic Slowdown: With GDP growth projected at just 0.9% for 2024, economic conditions have remained weak, limiting consumer spending power. This economic stagnation, coupled with high inflation rates, further restricts Canadians’ ability to afford homes​ (Norada Real Estate)​.

Supply Constraints: New housing construction has lagged behind demand due to high building costs, regulatory delays, and slower project approvals. Despite government efforts to increase housing supply, the rate of new builds has not kept pace with population growth​ (CMHC).

Stricter Mortgage Rules: Tighter mortgage guidelines introduced in 2022 have made it harder for buyers to qualify for loans, further cooling the market. These rules, intended to prevent excessive borrowing, have inadvertently locked out many potential homeowners.

Population Growth: Rapid immigration has sustained strong housing demand, exacerbating the supply-demand imbalance and pushing prices higher. Canada’s population growth, one of the highest among developed nations, continues to drive demand for housing.

Where to Invest Your Money

Given the challenges in the Canadian housing market, investing in the U.S. real estate market offers a promising alternative for Canadian homeowners and prospective buyers. Here’s why:

Higher Returns: Rental income in the U.S. often provides better returns compared to Canada. For example, in Miami, the average rental yield is approximately 6%, while Toronto's is around 3%. This means that for a property priced at $500,000, an investor in Miami could earn $30,000 annually in rental income compared to $15,000 in Toronto.

Cost Comparison: The cost per square meter in major U.S. cities generally offers better value. For instance, Miami's average cost is $5,952.44 per square meter, significantly lower than Toronto's $10,825.13 and Vancouver's $13,422.43. This lower entry cost means investors can purchase more property for the same amount of money, enhancing potential returns. (Norada Real Estate)

Flexible Financing: Unlike Canada, where mortgage approvals are heavily income-based, the U.S. offers more flexible financing options for international investors. Specialized lenders like Milo provide tailored mortgage solutions that do not solely rely on personal income for qualification. For example, Milo’s cash flow loan program evaluates the projected income from the property and its debt-service coverage ratio (DSCR), making it easier for Canadians to secure investment properties (Norada Real Estate).

In Summary

The Canadian housing market is currently constrained by high prices, low supply, and economic challenges. For homeowners and prospective buyers, investing in the U.S. offers a viable alternative, with higher returns and better value compared to major Canadian cities. By leveraging investment opportunities in the U.S., Canadians can potentially navigate the current housing market crisis more effectively. Whether you’re looking to diversify your investments or find more affordable housing options, the U.S. market presents numerous opportunities worth exploring.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

Author

CEO / Founder at Milo

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