Thoughts on Canadian Housing

A thought on Canadian housing. Canadian housing affordability is worse than it was in the late 80’s and early 90’s.

One or a combination of three things need to happen to bring this back down:

1)  Wages rise
2)  Interest rates decrease
3)  Home values fall

Wage growth is currently growing between 3-4% per year. This is not enough to make a drastic change.
Interest rates will be allowed to decrease when inflation comes down closer to 2%. Even though the Bank of Canada’s tolerance for inflation is between 1-3% they are determined to have inflation fall back to exactly 2%.

Therefore with inflation from September running at 3.8%, we are not likely to see interest rates fall in the short term.

Since wages are unlikely to rise and until interest rates decrease, we are likely to see easing of housing affordability come from falling home values.

While data suggests that we are in a balanced housing market, my anecdotal experience says that we are in a buyers market.


Changes that might cause house prices to rise are:

1) The government/regulators could allow mortgage amortizations longer than 30 years.

2) The government/regulators could ease the renewal process of existing mortgages. This could include variable rate mortgages where the payments did not increase and are not covering the interest accruing every payment.

3) We could see an unexpected drop in inflation as well as economic productivity, which would be a deeper recession.


sideways housing

I could see a direction of housing dip in value followed by a recovery however prices are not likely to recover to the most recent highs until wages rise and interest rates decrease.

Having said that demand for housing is likely to put a bit of a floor on the Canadian market.


Final thoughts

Canadians will always need a place to live. The desire to own a home rather than rent will always be there.

With a growing population, relatively good education and an eventual return to more “normal” interest rates, home prices will likely become more affordable but hold value over the long term.

What is the New Normal for interest rates? My guess is that mortgage rates in the 4-5% are likely to be the New Normal in the medium term.

Until next time,


Trevor Dale, CFA

CEO, TK Dale Wealth Inc.

Portfolio Manager, TK Dale Wealth Management Inc.

Life Insurance Agent, TK Dale Wealth Insurance Inc.

Mortgage Broker, TK Dale Wealth Mortgages Inc. Lic. #13359

#7-17075 Leslie St.,  Newmarket, ON L3Y 8E1

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