Canada’s Real Estate Bubble Has Buyers Paying 2x The Mortgage of Existing Owners

Canadian homeowners often say affordability isn’t that bad, new buyers just need to stretch further. That’s because they’re most likely unaware they’re paying half of what it takes to buy a home now. Equifax data shows an average homeowner pays half as much on a mortgage compared to buyers in Q3 2021. This trend has worsened as interest rates fell, turning a hot market into the Hunger Games. Canada is a land of opportunity. The opportunity for immigrants and young people to pay double for shelter, compared to existing households. 

Canadian Homeowners Are Paying Less Than Half of What New Buyers Need To Pay

Canadian home buyers pay huge premiums compared to existing owners, and it’s getting worse. The average homeowner had a monthly mortgage payment of $1,382 in Q3 2021, a reasonably modest amount. An average new home buyer isn’t quite as lucky, with an average mortgage of $3,139, about 127% more. The gap has been getting wider, even accounting for the decline in interest costs.

Over the past few years, the gap between homeowner payments and home buyers has increased. In 2020, the average home purchase required a minimum monthly payment of $2,517 for Q3. It’s about 90% higher than the average monthly payment made by an existing owner in the quarter.

Pre-pandemic, the gap was much smaller despite substantially higher interest costs. In 2019, the average home purchase required a monthly mortgage payment of $2,396. It was about 81% higher than the average payment an existing homeowner was making. But still better. Falling rates didn’t fix it at the national level, but let’s see what this looks like in major markets.

Canadian Average Q3 Mortgage Payments

The average monthly mortgage payment for existing homeowners, compared to the mortgage payment an average home buyer in the quarter needs to pay.

Source: Equifax; CMHC; Better Dwelling.

Toronto Real Estate Buyers Pay 118% More Than Existing Owners

Greater Toronto real estate also shows a similar trend. An average home buyer in Q3 2021 needs to pay 118% more per month on a mortgage compared to existing owners. In Q3 2019, the premium was 113%, so this is a pretty big jump. The cut to interest costs was absorbed and then some.

Vancouver Real Estate Buyers Pay 121% More Than Existing Owners

Vancouver real estate lagged behind the rest of Canada for price growth since 2020. An average home buyer in Q3 2021 needs to pay 120.5% more per month than existing owners do on their mortgages. In Q3 2019, the premium was 130%, which is one of the few improvements. It’s still very high, especially when you consider it’s the most expensive market in Canada. The incomes aren’t any better than the national average, either.

Montreal Real Estate Buyers Pay 119% More Than Existing Owners

Montreal real estate is seeing the gap widen very fast, similar to national numbers. An average buyer in Q3 2021 needs to pay 119% more than existing owners. In Q3 2019, new buyers were paying 74% more than current owners’ monthly payments. The growth in the gap between 2019 and 2021 is just one point below the national average. 

Canada’s government and the central bank are making reckless decisions. Low rates are destroying affordability, by driving excess demand. Leadership argues otherwise, despite Bank of Canada research showing they are incorrect. It also has the G7’s biggest gap between home prices and incomes, with the lowest growth forecast. This is not an ideal setup for the future, it’s an exploitative one.

Canada is pumping the gas on higher home prices. Policymakers fear existing homeowners paying half the price for housing, and who recently gained ~$160k in equity in one year, might lose money. So it’s making young people pay more than double to support the gains of households with the windfall. It’s an odd set of priorities. Unless you’re a wolf spider, I guess.


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