Housing Crisis Canada

Housing situation in Canada is getting worst as you need to have at least million dollars to buy a simple roof over your head.

Surely this problem is not going anywhere unless housing availablity and affordability comes back into picture.

Intro :

The age-old law of supply and demand that is applicable to consumer goods, is also applicable to real estate in Canada.

Experts believe we has become a nation of renters, because owning your own place to live is getting difficult for a common man now.

Surely there are multiple reasons contributing to this housing crisis we are facing, the main being high cost of buy it.

Consequently many would-be home buyers just pull back for that reason.

The housing price index where 100 means a stable price, stood at 128.9 for Canada in the month of Jan 2023, indicating that homes are more expensive than average.

Inflation :

Inflation has been a big topic recently, as this has eaten away purchasing power of Canadians.

With decrease in buying power of loonie, prospective homebuyers will surely need more money to buy their dream home.

Unfortunately income levels have not been rising enough to meet rate of inflation.

On top of it, our hot real estate market has made houses unaffordable for a common man.

Also cost for new construction has gone through the roof, since supply chains got disrupted during pandemic which elevated cost for the builders.

In nutshell, inflation is creating havoc with people’s finances which is not helping the housing situation in Canada.

Real estate investment :

Often during times of economic uncertainty, investors try to protect their wealth by investing in assets that hold their value over time.

That is why wealthy investors have always used real estate as one of the most popular investment vehicles.

Unfortunately it resulted in housing shortage, as increasing volume of real estate is held as investment for appreciation or rental returns, than by homeowners who want to live and raise their families.

I agree there is nothing wrong in real estate investing, but that has adversely affected an average Canadian who is not able to afford it now.

Recently the federal government prohibiting non-Canadians from purchasing residential properties, so that speculative buyers are discouraged.

Immigration :

Canada plans to open its doors to even more immigrants, but the government does not have a comprehensive housing solution for newcomers needed to fill jobs in this country.

Housing affordability and availability are two key concerns for Canadians, who are generally in favour of higher rate of immigration.

Latest survey showed this will have a positive economic impact, as we have over one million job vacancies because of labour shortages.

On the other hand some Canadians have a valid concern like, I can’t even afford my own rent or struggling to pay my mortgage and we’re bringing more people into this country, where are they going to live.

Un-affordable place :

An average household last year needed over 60% of their disposable income to cover costs related to housing.

This figure is even worst if you live in Vancouver or Toronto, where it takes 90% and 80% respectively of your incomes that goes into housing related expenses..

This un-affordability soared to new heights when home prices went through the roof during pandemic.

Until last year even smaller towns had a red hot real estate, which is a cause of major concern.

As rates have started to go up recently, now higher mortgage cost need even deeper pockets to own property coast to coast, according to experts.

The fact remains, household incomes are not keeping pace with home prices which need to be checked, else we could have a huge correction in the future.

Crash Coming :

After years of overheating, Canadian housing market has entering a crisis zone according to experts.

Using macroeconomic and financial risk indicators, up to 16% of major economies have an 18 to 20% chance of suffering a housing crisis, that too within the next three to five years whereas historic average is just 2%.

Housing boom in these advanced economies were fuelled by a long period of ultra-low rates, where prices on an average have gone up by about 50% in a short period of time.

This valuation jump is not in sync with income growth, and historically been linked to a bubble generation leading to a huge correction.

If not checked in time this bubble will pop which is a matter time.

Disclaimer :

As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.

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