Canadian property bubble

Canada's last housing bust was during the early 1990s recession, when Canada was facing low commodity prices, a large national debt and deficit that was weakening the value of the Canadian dollar, the possibility of Quebec independence, and recession in it's main trading partner, the United States. Average house prices (adjusted for inflation) declined continuously in Toronto, the largest real estate market, from 1989 to 1996.

The decline of Quebec separatism after the 1995 referendum, and the 2000s commodities boom caused by rising demand from the United States and China significantly strengthened personal finances among the middle and upper classes in Canada. As well during this time, significant rural-to-urban migration and international immigration to Canada put pressure on house prices in major cities.

The handover of Hong Kong in 1997 in particular caused many wealthy Hongkongers to immigrate (at least temporarily) to Canada, to acquire a second nationality and seeking a place to buy assets safe from communist Chinese authorities. This became a strategy that was later copied by many mainland Chinese who grew wealth during China's boom.

This influx of foreign investment was reinforced by local speculative activity facilitated at a steady drop in interest rates. Once the pattern of rising prices had been established, consumers interpreted this as proof that the real estate market had become the perfect option for stable, long-term investments. The feeling that there was a limited supply of homes on the market brought new consumers hastily into the market. Owning a home is also a very sought-after ideal for young adults in Canada. These social pressures along with increasing opportunities for profit were driving the growth of the market, causing first time home buyers to struggle to find a place to live at a reasonable price.[3]

In March 2017, the cost of owning a home in the Greater Toronto Area had grown 33% in just one year's time, with 19% of that growth occurring in just the two most recent months. Even the less desirable, semi-detached homes had surpassed $1 million in value. Suburbs have seen large price increases as well. Homes that have not seen upgrades in decades were being sold well over asking price. Condominium prices were seeing consistent growth with each passing year, even with a large number of units under construction.[4] Economists have compared the situation to many other historical real estate crises.

Prices per square area vary widely by region. In January 21, the Vancouver Sun reported that $500,000 in Killarney Road, New Brunswick (a commuter town near the provincial capital,Fredericton) could buy a five-bedroom, four-bathroom detached home, whereas in Vancouver the same money would only buy a 495-square-foot one-bedroom condo in Vancouver's Kitsilano neighbourhood.

Vancouver has experienced more direct foreign investment than other Canadian cities since the 1990s, as well as strong in-migration, and has therefore increased faster than the rest of the country. High prices in Vancouver have pushed middle class buyers out to other parts of British Columbia.

Economic growth, migration rates, and therefore housing prices in Alberta, Saskatchewan and Newfoundland and Labrador are tied to oil and gas prices, and therefore experienced their strongest growth during and just after the oil price spikes of 2003-2008 and 2009-2014. Growth slowed or reversed during and immediately after the oil price drops of 2008-2009 and 2014-2016. The impact of the 2020 price crash will depend on how strong the post-pandemic recovery is, but average housing prices in Alberta did not drop year-to-year from 2019 to 2020 as many had predicted.

Much like in British Columbia, in Ontario the fastest rising prices have been in the main urban centre, Toronto, which, like Vancouver is a major hub for foreign investment and immigration. Rising prices elsewhere in Ontario may be a ripple effect radiating out from Toronto.

Quebec and the Maritime provinces have not seen as dramatic growth in prices as the rest of the country, as their economic growth and population growth is generally much slower.

People displaced from the major cities by high prices have bid up prices in small number of popular smaller cities, creating secondary bubbles in those places, but not in smaller cities and towns generally, which are significantly cheaper in proportion to cities than they were a generation ago. The smaller cities that have grown rapidly are those that are within the commuter belt of major cities (the 905 region of Ontario or the Fraser Valley in British Columbia) as well as those known as retirement communities, such as Sydney, British Columbia and Charlottetown, Prince Edward Island, as well as in resort towns like Whistler or Kelowna.

It is widely believed that Canada is an international money laundering haven,[15] and that most of the funds end up in residential real estate primarily located in Vancouver, Toronto, Markham, and Montreal.

Laundering money in Canada is colloquially referred to as "snow washing".

Experts refer to "The Vancouver Model" as a way for Chinese organized crime to launder revenue generated primarily by fentanyl sales through casinos.[16]

According to Stephen Schneider, criminology professor at St. Mary's University in Halifax, "We've never seen anything like this in Canada, and you probably won't see anything like this any time soon." Schneider has also said, "I've never seen such a big operation … that is so geographically confined." His comments were part of the Cullen Commission, which is an ongoing public inquiry into money laundering in British Columbia, led by B.C. Supreme Court Justice Austin Cullen.[17]

The Cullen Commission has estimated that in 2019 alone, $5.3 Billion of illicit funds was laundered through the Vancouver real estate market, which increased housing prices by 5%.[18]

In 2016, Transparency International Canada found that 33% of the most valuable residential real estate in Vancouver was owned by shell companies, and at least 11% have a nominee listed on their title.[19]

Transparency International Canada also studied corporate ownership of Greater Toronto residential real estate and found that between 2008 and 2018, $20 Billion of purchases were made using over 50,000 corporations with no checks and balances to determine the beneficial owners or source of funds.[20] Roughly $9.8 Billion (49%) of those purchases were "all cash buys", i.e. no mortgage debt was used for the purchases. In addition, roughly $10 Billion (50%) of the same corporate purchases used mortgages from private unregulated lenders. In contrast, only 11% of households purchase real estate with "all cash" and 3% use private lenders.

Transparency International Canada has highlighted that part of the problem is lack of data.[21] The availability of real estate ownership data varies by province, and is hidden behind a paywall.

Canada is a nation that is heavily dependent on the real estate industry, as it accounts for around 12% of their GDP. There is a high risk that if sentiments begin to change and investors feel that the market is about to take a turn for the worse, that there will be a mass of people selling their properties, causing prices to drop, and potentially snowball.[22]

If the reset rate for the year is higher than in the past, there will be a large risk of default for Canadians with high amounts of debt. Since two-thirds of Canadian mortgages are backed by insurance, a rise in defaults will leave the debts on the hands of the Canadian government. Any drops in home prices could also cause homeowners to owe more on their mortgages than the house is currently valued, which is known as negative equity.[23][24]