Canadian Real Estate Grossly Overvalued And Ready To Pop

The price of real-estate in Canada has become increasingly more expensive over the past several years, and despite the increase, properties are still being sold as investors continue to funnel into the area. Many have wondered when, if ever, this real-estate bubble is going to finally pop. According to the Organization for Economic Co-Operation and Development (OECD) and Deutsche Bank Global Markets Research, the Canadian real estate bubble is the most overvalued real estate bubble in the world. However, they do not include data on China in their overview. The Economist has also estimated Canada's housing prices to be overvalued by at least 35 percent.  Previously, the Bank of Canada governor also indicated that he believed the market was overvalued at least by 30 percent, if not more. Experts are warning that Canada could be facing the same (or even worse) devastation that occurred in the U.S. back when their housing bubble burst back around 2007.


This image shows housing prices for both Canada and the U.S., with the yellow line being the U.S. real estate market which you can see went into a bubble from 2005 through 2007, and popped mostly because of mortgage-backed securities. As you can see from the image shown, our bubble has continued to increase throughout the past few years.


  The above image indicates our own problem with mortgage-backed securities here in the Canadian real-estate market. If the bubble does pop, it is expected that we will see at least a 50 per cent drop in house prices, according to MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash. In the past decade, house prices have continued to climb, with areas in Vancouver seeing increases at roughly 7.8 per cent in just the last year. Those who would be in the best position to weather the storm, would be those without any mortgage, who are debt-free, and who have set aside some diversified savings for themselves.


Vancouver's real estate market is so costly that some have even considered sharing property in order to afford it. The Morey family is just one example of a family who is trying to cut costs by sharing mortgage payments with another family; the Thrift's. The two families chose to tackle the mortgage together because on their own neither one was able to afford a home. Back in 2005, they went with a property of 3000 square feet, that had a total cost of $800,000. The Thrift's live in the upper portion of the house and the Morey's have the basement, while they both share the living room, dining room, and kitchen. “Living with people is just hard, because you don't get to do whatever you want whenever you want,” says Erin Thrift, but she insists that there are many benefits to the arrangement. Like benefits of sharing taxes, sharing utilities, renovation costs, and more. To cover unforeseen circumstances that might add difficult to the arrangement, the two families forged a co-ownership agreement.


Back in 2014, the average national resale home price listed was $416, 584, and the annual gross income that was needed in order to afford a mortgage for that cost based on a 5-per-cent down payment was $89, 363. Whereas, the median family employment income average back in 2014 was roughly $68, 692.


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