Canadian real estate prices have been distorted by a massive overextension of credit. Just how bad has it become? The view is always tricky from inside the bubble, so let’s compare them to our neighbors down south. Comparing prices to the frothiest US cities, we can see how odd Canadian real estate has become. The rate at which Canadian real estate prices have grown dwarfs even the frothiest of US cities.

About The Data

Today we’ll be looking at home price growth in Canadian and US cities, using two home price indexes. For US prices, we’ll be using the Case-Shiller Home Price Index (CS HPI), the pioneer in home price indexing. For Canadian prices, we’ll be using the Teranet-National Bank of Canada House Price Index (TNB HPI), which is modeled after the CS HPI. Instead of comparing direct prices, we’re going to be looking at the percent change from the year 2000. The prices will be compared to March 2019, the last available month in the CS HPI.

The Canadian cities we’ll be looking at are Toronto, Montreal, and Vancouver – the 3 largest markets. The US markets used will be San Francisco, Los Angeles, New York City (NYC), and Seattle. The first two are being used because UBS ranked them as bubble cities, with unsustainable price growth. NYC and Seattle are included because people in Toronto and Vancouver like to compare their cities to those, respectively. NYC and Seattle are both also considered to be high price growth markets.

Canadian Real Estate Price Growth Is Absurd Compared To The US

Since 2000, Canadian cities have experienced absurd price growth to major US “bubble” cities. Toronto real estate prices have increased 239.9% as of March 2019, when compared to prices in 2000. Montreal real estate prices have increased a more modest, but still large, 189.08% over the same period. Vancouver, which recently lost the throne to Canada’s most expensive real estate market, increased a whopping 315.58%. None of the US cities have shown that kind of increase. These numbers are inflation adjusted.

Canadian Real Estate Price Change

The percent change for real estate prices in Canada’s largest real estate markets from January 2000.

Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.

Toronto Real Estate Prices Grew Over 133% Faster Than NYC

Toronto real estate prices are some of the fastest growing in the world. When compared to Los Angeles, price growth was over 33.67% higher from January 2000 to March 2019. Over the same period, they grew 45.27% faster than prices in San Francisco. Prices grew 61.01% faster than they did in Seattle. Toronto demolished NYC for price growth, growing 133.39% faster. Toronto prices are some of the fastest growing in the world until recently. UBS ranks it the third largest real estate bubble, just behind Hong Kong and Munich.

Toronto Real Estate Price Change

The percent change for Toronto real estate prices from January 2000.

Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.

Vancouver Real Estate Prices Grew Over 207% Faster Than NYC

Few places in history have ever seen real estate prices grow as quickly as they did in Vancouver. Vancouver real estate prices grew 75% faster than those in Los Angeles, when measured from January 2000 until March 2019. Prices grew 91.10% faster than they did in San Francisco during the same period. Vancouver crushed Seattle, with price growth that was 111.81% faster. New York City isn’t even close, with Vancouver real estate prices rising 207.02% faster over the past 19 years. UBS listed Vancouver just under Toronto on their bubble index, and you can probably guess why.

Vancouver Real Estate Price Change

The percent change for Vancouver real estate prices from January 2000.

Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.

Montreal Real Estate Grew Just Over 5% Faster Than LA

Relative to Toronto and Vancouver, Montreal real estate prices are making a relatively stable move. Montreal real estate prices grew just 5.43% faster than Los Angeles prices from January 2000 to March 2019. Canada’s second most populated city outpaced San Francisco by 14.50% during the same period. Prices grew 26.90% faster than Seattle, and 83.95% faster than New York City. Montreal did not make any of the bubble lists, and prices grew at less than half the pace of a typical Canadian city over the past 5 years.

Montreal Real Estate Price Change

The percent change for Montreal real estate prices from January 2000.

Source: S&P Dow Jones Indices, Teranet-National Bank of Canada House Price Index, Better Dwelling.

The Canadian economy is much more dependent on real estate than the US has ever been – even during the 2006 peak. Residential investment represents just under 8% of GDP in Canada, almost twice that of the US. This means the business of buying and selling real estate is very important to Canada.

So important, high prices are needed to continue to drive producer incentive to build. When prices fall, so does the supply developers are willing to build – as Vancouver is seeing. Consequently, the Canadian government has been willing to inject money to prop up prices, and turn a blind eye to billions in questionable purchases in Toronto and Vancouver. Of course, that brings its own issues in driving price growth as well.

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