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The Canada housing market

When the United States had its mortgage bubble, many in Canada feared that the housing market would soon collapse there. While there was a slowdown in the market and prices did drop, there was nowhere near the same disaster seen south of the border. One major reason for this is that mortgage rules in Canada are much stronger than those found in the United States.

Today, some of the biggest housing markets in North America are found in Canada. In Vancouver, sales are up 40 per cent from a year ago and prices are up 3.2 per cent. In Toronto, prices jumped nine per cent and sales were up 2.1 per cent from a year ago.

All this shows that Canada is going strong with its housing market these days. Currently, the average home price in Vancouver is $733,335. This actually makes Vancouver the most expensive housing market in North America, and well above other cities on the continent. Toronto's average home price is roughly $475,206. To put this in perspective, the average home price for a home in Los Angeles is $423,900.

Other Canadian cities include:

  1. Calgary: $400,000
  2. Ottawa: $314,080
  3. Edmonton: $310,058
  4. Montreal: $287,341

Will it collapse?

One worry in Canada right now due to the soaring costs of homes is that there will be a correction soon. In fact, for the past two years, analysts have been predicting a correction that just doesn't seem to come. Many are warning it will soon be here, but others say that there is nothing to worry about.

According to Pimco, it is expected that the housing market in Canada will fall by as much as 20 per cent in the next five years, which will remove the boost that was seen in household spending after faster-than-normal growth. Currently, Pimco has stated that the Canadian housing market is overvalued. The organization, which is the world's largest manager of bond funds, states that growth will be around two per cent this year, less than the 2.3 per cent forecasted by the Bank of Canada.

This is not to say that it is a collapse by any means, but more of a correction. It shows signs that the housing market is cooling. The Deutsche Bank released a report in December stating that the Canadian housing market was the most overvalued on the entire planet, with prices 60 per cent too high. Last month, the overvalue was pegged at 10 per cent too high by the International Monetary Fund.

To put this in perspective, while Canada is as high as 60 per cent overvalued, the market in Japan is 40 per cent undervalued. The next closest to Canada is New Zealand, which sees its market roughly 50 per cent overvalued. Other countries that are overvalued in their housing markets are Australia (40 per cent), France (35 per cent), Israel (10 per cent), Korea (five per cent) Ireland (2 per cent). The United States, Italy and Switzerland are neither overvalued nor undervalued in their housing markets. Greece, Germany, Portugal, Slovenia, Czech Republic and Iceland are all undervalued.

What Can $500,000 buy?

So, you have $500,000 to spend on property, what can you buy in Canada? This exercise actually gives a good look at the housing market in Canada and how in some places it is horribly inflated, while in others it is much less inflated.

You can get the following for $500,000 in Canada:

  • Edmonton: A two-and-a-half storey, three bedroom home with 2.5 baths and a double-detached garage, five minutes away from a resident's only lake.
  • Montreal: A four-bedroom bungalow built in 1959 with two baths.
  • Ottawa: A two-storey family home with four bedrooms and four bathrooms.
  • Regina: A two-storey house with 13 rooms, including three bedrooms and three bathrooms.
  • Saskatoon: A two-storey house with four bedrooms and four bathrooms.
  • Toronto: A two-bedroom townhouse with one bathroom, a total of 803 square feet.
  • Vancouver: A one-bedroom, one-bathroom condo, and less than 900 square feet.
  • Windsor: A two-storey home with four bedrooms, a master bathroom and a 2.5 car garage.

As can be seen, in Canada the housing market is varied. While in Toronto you can get what amounts to a small apartment for $500,000, you can get a 4,000 square foot house in Windsor. For many, the housing market is out of reach of many due to huge downpayments and tough rules. Nonetheless, the market is going strong and apart from a correction or two, will probably continue to be one of the strongest in the world.


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