Could we see a housing crash?
Canadian real estate is now some of the most expensive in the world. Let that sink in. Even in Saskatoon – house prices are becoming hard for many people.
Home prices across the country, not in pricey hubs, are now comically overvalued. At this point, not even a major housing crash can restore affordability. Many think this is pandemic-related, but overvaluation has long been a concern. For at least a decade, the central bank, government, and various agencies have rung the alarms. Let’s go through some of the numbers and see what price points they felt were a concern, and proceeded to do nothing.
What If A Housing Crash Happens?
A Large Housing Crash Only Brings Prices To Pre-Pandemic Levels. That means, even if there is a big housing crash, housing does not go back to affordable levels.
If a severe housing crash occurs, home prices make a remarkable 30% drop that just puts us back to pre-pandemic levels. The typical home would cost $558,740, the same price as of December 2019. It wasn’t exactly a period where home buyers fawned over Canadian housing affordability.
What If Two Housing Crashes Happen?
If there were two housing crashes, one after another, then home prices would be back to where banks warned, “there is a problem”.
We established a 30% drop would still be out of control. But let’s keep going to see precisely how negligent Canada has been. Let’s look at where Canada would be if home prices crashed twice in a row, making a 20% drop on top of a 25% drop. The unlikely scenario would put home prices at $510,848, levels last seen in February 2017. So, if house prices and crash came and we can get homes to crash almost 50% – we are back to affordability? But, that affordability is just for new homeowners. What happens to those people who bought at the highest? Is affordability going to be a problem?
What Should Canadians Do?
This is something we really need to start looking at. There are several reasons for children to leave home and kids to leave their home countries – adding home prices to the reasons is not a great idea.
Canadian Millennials have seen G7 peers advance faster over the past decade. As young Canadians face more considerable hurdles, this will weigh on their standard of living. On average, Canadian living standards and our quality of life relative to other countries are set to decline as other countries make their economies more productive.
We are going to start to see some really interesting consequences to the housing in Canada if we soon do not get it under control.
As always, if you need help with buying or selling your home do not hesitate to contact Gregg Bamford or Ryan Bamford.