The Time Bomb is ticking on the Canada Real Estate Market

     It is only a matter of time before the Canadian real estate market winds up crashing down like the US real estate market.  The statistics on key Canadian markets are worse than Florida, Arizona, or Las Vegas before those markets crashed and burned starting in 2005.

     Canadians used to be a very conservative lot.  They were always seen as our prudent neighbors to the north.  That changed in the 2000’s with the boom in natural resources and the stupidly low interest rates brought on since the 2008 financial market collapse.   

 

	Vancouver 2011 C$	Las Vegas 2005 US$
Average Income (2009 number for LV)	$63,100	$54,327
Average price of house sold (May 2005 LV October 2011 Van)	$602,000	$301,000
Average Price per Income	9.5	5.5
National savings rate	4.1%	-0.5%
National Average Credit Card Debt	$3,539	$7,782
Percentage of Income used to cover the cost of a home (10% down)	52%	36%
Average price of house sold today in Las vegas		$129,000
Percent decline		-57%
If Vancouver follows similar pattern	$258,000

   

    I am showing Vancouver because that market is the extreme market of the Canadian market, just like Las Vegas was in 2005 for the US market.   It does not mean the problem in confined to the west coast of Canada.  There are equally bad signs in Alberta, Calgary, and Toronto.  Now does this mean that the markets in Canada will see declines like they did in the US?   

    I think there is a good chance for markets like Vancouver and the resource led areas like Calgary, will see some large declines.  I think Toronto will experience more of a decline like New York City where they had declines of around 20% and a stagnant market for a number of years.  This is simply because Toronto is a world class city with a diverse economic base.    Toronto was an expensive market before the boom and will be one after the bust.   There is such a demand because of population growth and built up wealth that there is only a smaller amount of a decline before the market finds a bottom after a bust.   I would not be a buyer in Toronto right now.  Let it decline for 18 to 24 months and it might make sense then.

Full Disclosure

I do not own real estate in Canada nor do I plan to in the foreseeable future.  I am just an observer that is interested in identifying market based opportunities.