The Most Splendid Housing Bubbles in Canada Deflate

The comments below are an edited and abridged synopsis of an article by Wolf Richter

Canadian housing markets are in a category of their own. No housing market in the US—no matter how crazy Housing Bubble 1 was, the one that began to implode in 2006, or how crazy Housing Bubble 2 is or was—can hold a candle to the most splendid housing bubbles in Canada. Instead of a financial crisis and a mortgage crisis and Housing Bust 1, the bubbliest Canadian markets only had a small dip, and within months were back on track to what would be an 18-year housing boom that is now coming undone.

The Most Splendid Housing Bubbles in Canada Deflate | BullionBuzz
Row of modern houses in Vancouver BC, Canada

Richter discusses the real estate markets in Vancouver, Toronto, Montreal and Calgary, and says that home prices in Canada are no miracle; the index measures how the price of the same house simply changes over time. A certain house didn’t get bigger or better or more opulent. It just got older.

What has changed in a major way is the purchasing power of the Canadian dollar with regard to assets, particularly with regard to homes: It has plunged. And what we are seeing are the effects of asset price inflation or, more precisely, home price inflation.

The ‘sales pair’ indices are a good measure of inflation for home prices, because they track the price changes of the same house, just like consumer price indices are a measure of consumer price inflation by tracking price changes of individual items. No magic involved—just the loss of purchasing power of the Canadian dollar, and thereby the loss of purchasing power of Canadian labour that is paid in these dollars.

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