How Does the Canadian Housing Market Compare to the U.S. Right Now?

“The takeaway: If you are looking to buy a house in the United States, don’t wait for or expect a home price crash. We don’t foresee one coming (thankfully), nor do we think one is necessary to restore affordability at the national level. We think time and continued robust income growth can cure the problem on their own,” said Joe Syedl, the senior markets economist at JPMorgan Chase, in a Nov. 2023 research note.

Now, how does this compare with the Canadian real estate market?

New data from the Canadian Real Estate Association (CREA) show that housing activity was robust while prices eased. In January, residential property sales advanced nearly four per cent, totalling approximately 40,000 units.

The MLS® Home Price Index (HPI) tumbled more than one per cent monthly and jumped 0.4 per cent on an annualized basis. The national average home price surged 7.6 per cent from January 2023 to nearly $660,000.

Housing inventory levels slipped to start the year. The number of months of inventory clocked in at 3.7, down from 3.8 months at the end of December and 4.1 months at the end of November. Typically, the long-term average for this time of the year is around five months of supply.

That said, the number of newly listed residential properties increased 1.5 per cent from December to January. Unfortunately, new listings are hovering at their lowest levels since June 2023.

“The market has been showing some early signs of life over the last couple of months, probably no surprise given how much pent-up demand is out there,” said Larry Cerqua, Chair of CREA, in a statement. “There’s a consensus that the market will probably look quite a bit different this year compared to 2022 and 2023.”

New housing construction activity levels were higher than they were a year ago. Still, housing starts fell by ten per cent month-over-month in January, falling short of economists’ expectations of 235,000 units, according to the Canada Mortgage and Housing Corporation (CMHC).

“Despite the trend performance, actual starts saw strong year-over-year growth, driven by high multi-unit starts, particularly in Toronto. In fact, from a historical perspective, we observed the second highest number of housing starts for January going back to 1990,” said CMHC chief economist Bob Dugan in the report.

Ultimately, both the Canadian and US housing markets are experiencing tight supplies, terrific price growth, and expectations of lower mortgages by the year’s end. Even with higher prices, there is still demand, although prospective homebuyers may not witness much price relief. Remember, home prices are still higher than where they were before the coronavirus pandemic. With possible mortgage relief on the way, the Canadian and US real estate markets could enjoy revived activity.

Concerning Trends in US and Canadian Housing Markets?

The US and Canadian real estate markets each have individual and comparable trends that deserve a spotlight as we embark upon 2024.

Subprime Mortgage Crisis … in Canada?

The subprime mortgage crisis in 2008 was one of the chief contributors to the Great Recession. More than a decade later, Canada is facing some subprime mortgage fears that some are calling an “accident waiting to happen.” A 2021 analysis from Bloomberg Economics found an alarming trend of more Canadian borrowers taking on zero-down mortgages. Three years later, subprime borrowing has become one of the fastest-growing segments of the broader credit market. Although there are plenty of regulations that prevent subprime lending on a massive scale, the Bank of Canada (BoC) is warning that the quality of home loans had deteriorated throughout the pandemic amid a zero-rate environment, citing quarterly surveys of loan officers that revealed they loosened mortgage lending conditions. However, as the BoC started raising rates, mortgage lending tightened. Since many are anticipating negative homeowner equity for the most recent homebuyers, concerns are mounting among industry observers. Will this result in a crisis? Financial regulators do not appear to be worried.

A Housing Affordability Issue

The US and Canada are each suffering from an affordability crisis that is pricing out young families from achieving the dream of home ownership. In Canada, the average price of a home is approximately $660,000, with valuations in the key markets of Toronto and Vancouver venturing north of $1 million. Even accumulating a down payment is taking longer for many households: roughly eight years. Moreover, people cannot simply relocate to a small town or a rural community since prices in these areas have soared to levels unseen before the pandemic.

South of the border, under-building has led to an acute shortage of housing, industry reports say. Estimates suggest that the US real estate market is short between three and six million homes. This has undoubtedly metastasized into a generational issue, particularly since seniors are more likely to own a home than older millennials. In addition, the current economic landscape has prevented homeowners from listing their properties. When rates were slashed to zero, families could scoop up cheaper single-family houses, townhomes, and condos at historically low mortgage rates. Today, there is little incentive to move to a more expensive home at a higher mortgage rate.

Is the Economy Too Dependent on Real Estate?

Is real estate accounting for too much of the economy’s growth? The real estate market accounts for nearly half of Canada’s gross domestic product, and mortgage debt is poised to eclipse the nation’s GDP.

In the United States, the economy is not as dependent on housing, although it still accounts for a large share of the GDP. Housing activity is estimated to contribute around 15 per cent to growth, comparable to the manufacturing sector. Still, the Federal Reserve warned in 2021 that the US economy, particularly following the devastating pandemic-induced meltdown, cannot afford a boom-and-bust cycle in real estate.

Houses for Sale Ottawa under $400 000

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