Low interest rates in Canada over the last 12 years have helped propel its housing market to become one of the bubbliest in the world.

Canada’s Housing Market Ranked Among World’s Most Overheated Markets

The Canadian housing market has skyrocketed for 12 consecutive years.  Tight inventory specifically in Vancouver and Toronto has rendered price appreciation and bidding wars in two those cities to be among the most aggressive worldwide.

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According to Bloomberg Economics, Canada came in second of five in the world’s most bubbly housing markets.  Take a look at the top five:

New Zealand

  • Price to Rent Ratio – 211.1
  • Price to Income Ratio – 166.6
  • Real Price Growth – 13.2%
  • Nominal Price Growth – 14.5%


  • Price to Rent Ratio – 204.2 1
  • Price to Income Ratio – 153.2
  • Real Price Growth – 8.7%
  • Nominal Price Growth – 10.0%


  • Price to Rent Ratio – 178.1
  • Price to Income Ratio – 150.4
  • Real Price Growth – 9.8%
  • Nominal Price Growth13.0%


  • Price to Rent Ratio –179.2
  • Price to Income Ratio – 140.9
  • Real Price Growth – 8.6%
  • Nominal Price Growth – 10.9%


  • Price to Rent Ratio -152.0
  • Price to Income Ratio – 131.4
  • Real Price Growth – 7.2%
  • Nominal Price Growth – 9.0%

Bank of Canada Expected to Lift Rates to Quash Soaring Inflation

Canadian homeowners have been playing a version of the refinancing game that Americans have been playing.  The problem for Canadians, however, is that the “refinance” loans are variable-rate mortgages so the rates automatically rise with the country’s benchmark borrowing cost.

Traders in Toronto expect the Bank of Canada to raise rates by a point and a half.  Industry experts say that any increase of more than one percentage point would drive current “refinanced” mortgages above current offers on conventional fixed-rate loans.

David Rosenberg, an economist who rightly predicted the 2008 US housing crash and founder/manager of his own analytics firm, Rosenberg Research & Assocs., said, “If the Bank of Canada goes at least as far as what the rates market has priced in, you’re going to have arithmetically at least a -25% plunge in residential real estate values.”

Variable Rate Mortgage Holders Betting Central Bank Won’t Go Overboard

The most recent data from Canada’s banking regulator indicates that variable or floating-rate mortgages represented more than 50% of all home loans issued each month from July to November in 2021.  As a comparison, the Mortgage Bankers Association indicated that floating-rate mortgages in the US accounted for only 3% of new mortgage applications in November.

Variable-rate loans are always hard to pass up because they’re cheaper and in Canada, that “discount” is the largest it’s been in a decade.  Bloomberg Economics estimates that Canadian homeowners could save about C$8,000 in interest payments in their first year if rates remain the same.

Right now, a record 27.2% of the banks’ outstanding residential loans, or C$372B, are variable-rate mortgages.

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Investors are betting that the Bank of Canada won’t do more than four rate hikes of a quarter-point each.  If traders are correct that the Bank of Canada will increase rates by 1.5 percentage points instead of the 1.0 investors are betting on, then all bets are off.

Thanks to Bloomberg.


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