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The Heating Canadian Housing Market| Causes And How To Get Into The Market

canadian housing market

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The  housing market in Canada has taken such a turn that the demand for houses is so high that it is creating bidding wars between buyers. For a lot of people, owning a home has been a lifelong dream. However this dream is becoming harder and harder to reach. Unless you have been living under a rock, you might have heard about the Canadian housing market and the fact that home prices are reaching higher and higher levels every day.

When the pandemic hit, the prediction was that the economy would take a hit and home prices would drop.  The  predictions were right on one point, the economy did take a hit. However, the same can’t be said for home prices in Canada. After a drop in residential sales activity a few months into the pandemic, the Canadian real estate market has rebounded nicely. A little too nicely, actually.

Some home buyers are having to pay between $50,000 and $100,000 more than the asking price to become home owners. In Toronto for example, the average home price broke the $1 million mark in February 2021. Other big cities and towns like Montreal and Ottawa have also reported crazy increases in home prices. Even smaller cities in Canada have seen an influx in home prices since the end of 2020 and the beginning of 2021. In Atlantic Canada, prices are going up as well and they show no signs of slowing down.

Low interest rates

The majority of the demand for housing has to do with low interest rates. To stimulate the economy the Bank of Canada lowered interest rates, which in turn made loans and mortgages more accessible to canadians. Low mortgage rates lowers the monthly cost of home ownership and the cost of borrowing overall. With this in mind, a lot of people who would not have qualified otherwise with interest rates around 3.5% before the pandemic, got a chance to dip their toes in the Canadian housing market. 

Just to put it into numbers for you, a $500,000 mortgage loan with a 3.5% interest rate and an amortization of 25 years would require monthly payments of $2,496.36. Whereas if all the other values are kept the same with an interest rate of 1.5 %, the monthly payments would be $1,998.59. As you can see there’s a difference of almost $500 per month which are huge savings.

This goes to show that while home prices are important to consider when buying a house, the interest rate you’re getting on your mortgage loan is also crucial. The interest rate not only determines how high your monthly payments would be, but it also shows how much the cost of the loan would be for the term of the loan.


With home prices getting more and more out of reach in the big cities of Canada, a lot of people are looking to relocate in other parts of the country known to have more affordable housing. Because of this, Atlantic Canada is also seeing increases in home prices. In Nova Scotia for example, home sales went up 30% compared to last year.

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Some of this relocation is also due to the fact that a lot of Canadians are now working from home because of the pandemic and can work from anywhere in Canada. So, they choose to relocate in a more affordable and more relaxed part of the country.

Millennials and home ownership

With home prices litteraly increasing by day, younger Canadians are finding it more and more difficult to become homeowners. A lot of millenials fear they might never be able to own their own home. This increase in home prices is creating more and more equality between Canadians and everyday home ownership is becoming an unrealistic dream for them.

The problem with home price increases is that it also affects renting costs. Rentals have also been increasing. Those two kind of go hand-in-hand. While renting and home prices are increasing, canadian salaries are not following the trend. Because of this, a lot of Canadian see about 40% to 50% of their salaries going towards rent and utilities. With this in mind, it’s nearly impossible for millenials to save for a downpayment on a house let alone become home owners.

What does this mean?

The Bank of Canada Governor Tiff Macklem said in a press conference that it was not the right time to tighten the rules surrounding the housing market. Part of this is due to the fact that the economy has suffered during the pandemic and the whole point of the Bank of Canada lowering rates was to revive the economy. Which we see is happening with the housing market in Canada. Because of this, officials are reluctant to tighten the rules or hold back. This means that we will probably continue to see homes reach record-high prices until one of two things happen: Either the government of Canada steps in the correct the issue or the Canadian housing market bubble bursts.

Advice for people buying a home

If you’re thinking about purchasing a home, make sure you are financially ready. One way of doing this is first to find out your pre-approval amount before starting your house hunting journey. Mortgage pre-approval is something that your financial institution or mortgage broker can help with and this will show the amount that the bank can lend you based on your financial situation.

You are not required to purchase a house closer to your mortgage pre-approval amount. For security, try to purchase a house that is less than the pre-approval amount as you may need to take on more debt to fix up the house or buy furniture. Make sure you have some money saved up for lawyer fees, and all closing costs related to buying a house.

As a homeowner, you are required to fix all the issues with the house. So it’s a good idea to not use up all of your savings as there might be emergencies rising up where you might need money the fix a plumbing issue, for example. For more tips, read 5 mistakes to avoid as a first time home buyer.

Buying a house is one of the biggest investments you’ll ever make in your life so make sure you are financially ready any emergency that my spruce up on you.

Posted in Pers. Finance, Personal Finance

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