Is the Canadian Housing Market Really Overvalued?

Posted on 10th March 2014
Tags: knows better than anyone that it’s been a tough winter. A misery index tracked by the U.S. National Weather Service shows that the winter of 2014 is one of the most miserable on record. The cold weather is also being blamed for many of the economic challenges facing the U.S., including weak February housing data.

This isn’t so in the Great White North, where the winter has been even more brutal. Toronto, which is still in the grips of the second coldest winter in 25 years, saw the average housing sale price in February climb 8.6% year-over-year—and five percent month-over-month—to $553,193.1

Real estate prices get hotter the further west you travel. In Calgary, the price of a single family home rose 9.1% year-over-year to $482,800. In Vancouver, the sale price for all types of residential properties climbed 3.2% year-over-year to $609,100; if you want a single-family detached home in Vancouver, the average price is an eye-watering $1.36 million.

With that in mind, it shouldn’t be a total surprise to learn that Canada is home to six of the 20 most expensive cities for real estate in all of North America: Vancouver came in at #1, followed by Toronto (#4), and Calgary (#8). Ottawa, Edmonton, and Montreal were not far behind, placing in the bottom half of the list, but not too far down; it’s still cheaper to buy a home in Denver, Miami, Chicago, Houston, Dallas, Orlando, and Cleveland.2

But is Canada’s housing market overvalued? It depends on who you ask. Not surprisingly, most real estate agents don’t think so, though many concede that even though the Canadian housing market is not in a bubble, it will experience a soft landing, meaning that Canadian housing prices may not rise as quickly as before.

Pimco, the world’s largest manager of bond funds, believes Canadian home prices will start to dip later this year and then fall by 10% to 20% over the next three to five years. The group also believes mortgage rates will rise later this year, softening prices.

The Deutsche Bank said it thinks Canadian home prices are 60% too high and states unequivocally that Canada is the most overvalued housing market in the world. The Canadian banks and the Organisation for Economic Co-operation and Development (OECD) also think prices are too high, but by a much smaller margin.

In an effort to release the steam in rising Canadian housing prices, finance minister Jim Flaherty initiated a number of tighter lending rules, including reducing the maximum amortization period for a government-insured mortgage from 40 years to 25 years and reducing the upper limit that Canadians can borrow against their home equity to 80%.

While these efforts made it more difficult for some first-time home buyers to enter the market, it didn’t really do anything to curb the increase in home sales.

That said, the Bank of Canada has kept its overnight lending rate at one percent since late 2010. The overnight lending rate is the benchmark rate retail banks borrow money at and impacts the prime rate—what variable mortgages, lines of credit, and student loans are based on.

With Canadian housing at record highs, many first-time home buyers are wondering what kind of mortgage is best for them. Five-year fixed mortgage rates are hovering near three percent and floating rate mortgages are as low as 2.35%. While consumers can be lured by deals, there’s more to consider when getting a mortgage than just interest rates.

For example, a floating (variable) interest rate might sound like a deal, but if you aren’t prepared for a sudden rise in interest rates, it might not be. At the same time, 82% of home buyers in 2013 went with a fixed rate mortgage.3

To lock in or not to lock in? That’s where comes in. Low mortgage rates mean 2014 will continue to be a great year to buy a home, but not all mortgages are created equally. Your independent, licensed agent will search hundreds of banks and lenders to find the mortgage that will help you get and stay in your dream home, and in most cases, they’ll get you pre-approved in 24 hours or less.


1. Perkins, T., “Canadian home sales defy expectations,” The Globe and Mail, March 5, 2014;

2. “North America’s top 20 housing markets: Vancouver, Toronto, Calgary among most expensive on continent,” Financial Post, March 5, 2014;

3. Marr, G., “How lower interest rates are making variable mortgages more tempting,” Financial Post, March 4, 2014;

Awards & Recognitions