In an unprecedented fashion Canada’s Real Estate Bubble Outpaces G7 Countries
Canada’s real estate market is turning heads globally, and the recent data from the world’s largest central bank is a stark reminder of just how extraordinary the situation is.
Housing market experts at the US Federal Reserve Bank of Dallas recently released their Q3 2023 update on global home prices, revealing that while most G7 countries experienced a similar trajectory due to rate cuts in 2020, Canada stands out as an outlier.
The Canadian real estate bubble, according to the Dallas Fed, surpasses the peaks seen in the US and Japanese bubbles, even predating the narrative of the recent population boom. While there are concerns in the Canadian media about a potential correction, the reality is that it’s more of a hiccup than a downturn.
Although prices dipped by 16.1% after reaching their peak in Q1 2022, the latest quarter still shows prices 11.4% lower than the peak, indicating a significant but not catastrophic adjustment.
In contrast to the United States, which experienced a real estate bubble that had far-reaching consequences for the global financial system, Canada’s bubble makes the US bubble look relatively modest.
Since 2005, US home prices increased by 88.1%, while Canada saw a staggering 206.8% gain during the same period, despite being the second-largest country globally with a GDP equivalent to Greater New York City.
When compared to other G7 countries, Canada’s real estate growth is unparalleled. After the US, the UK experienced the most substantial growth in home prices since 2005 (+83.7%), followed by Germany (+74.8%) and France (+53.7%). Japan (+5.0%) and Italy (+0.3%) had more modest gains, with both countries witnessing rapid home price growth in the 90s, only to never return to those indexed highs.
The recent surge in Canada’s population is often attributed to policy decisions aimed at supporting the real estate market.
However, stepping back and examining the situation holistically reminds us that concerns about Canada’s state-backed speculative credit bubble existed even before these recent decisions. The narrative surrounding Canada’s real estate market is undeniably unique and demands careful consideration of its long-term implications.
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