Canada's housing crisis worsens as bidding wars become more intense as shortages persist. A combination of people leaving cities and seeking rural properties mixed with a housing shortage has resulted in skyrocketing prices that are not sustainable.
According to The Globe and Mail, home prices in Canada surged 22% over the past year, and the median home price is at record highs. Cheap loans from the Bank of Canada (BoC), housing shortages, and people exiting cities have resulted in bidding wars.
Take, for example, Palgrave, a small town 31 miles northwest of Toronto. A rancher built in the 1970s had an asking price of $998,000 in June and sold later that month for $1,365,000. Just days on the market, a fierce bidding war broke out with 13 bidders who ultimately bid up the price 37% above list.
"There wasn't a lot of inventory, and there was another property that had sold recently in multiple offers, so we wanted to take advantage of any leftover buyers," Toronto-based agent Luisa Piccirilli said.
The house is nothing special and appears to be a typical rancher with 3,000 square feet and a three-car garage. But what attracted bidders is the backyard, a solid 2.4 acres.
Piccirilli described the bidding war mainly between those who wanted to escape city life and wanted a backyard.
"There's an exodus of people leaving the city and wanting more property and land," Piccirilli said.
As we noted over the summer, the housing investment boom was one of the biggest in years but has since cooled from its March peak as property prices are expected to come off the highs next year.
This means the Bank of Canada might not be "eager to raise interest rates" should a slowdown in housing activity continue, said Stephen Brown, senior Canadian economist at Capital Economics
For the year-over-year change in new home prices, the current levels are typically associated with periods of instability. In other words, the growth rate of prices cannot be maintained.
BMO's Doug Porter told clients in July Canada is one of the largest housing bubbles in the world.
Meanwhile, Canadian liberal leader Justin Trudeau has promised: "to put an end to speculative housing growth."
Trudeau said Canada's real estate market had fallen victim to "instability" and "uncertainty," which have led to "soaring prices, bidding wars, rampant speculation, and too many vacant properties."
If Trudeau were really up for the task to "fix" his country's housing bubble, then a price correction would weigh on GDP. In 2Q, residential construction was around 10% GDP.
So any intervention by Trudeau to tame housing prices is unlikely ahead of the Canadian federal election later this month.