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Canada’s housing market rebound is a mirage – prepare for a 2024 bubble burst
The recent December rebound in housing sales, despite a sluggish 2023, is a misleading indicator and masks deeper underlying issues in the Canadian housing market. While lower interest rates in 2024 might bring temporary relief, it’s a dangerous gamble that could inflate a new bubble and exacerbate long-term affordability problems.
Despite a late-year surge in sales, I believe the Canadian housing market is primed for a major correction in 2024. Here’s why:
Underlying weakness masked by December blip: While December saw a rebound, overall 2023 sales were the slowest in over two decades in key cities like Toronto and Montreal. This indicates a deeper issue beyond seasonality.
Unsustainable prices fueled by rate cuts: Lower interest rates, not genuine demand, are artificially inflating prices. This creates a bubble waiting to burst as rates inevitably rise again.
Mortgage qualification standards remain unrealistic: Despite easing, qualification standards are still unrealistic for many Canadians. This pent-up demand will flood the market once rates dip, further inflating prices unsustainably.
Overvalued market vulnerable to external shocks: The Canadian housing market is highly sensitive to external factors like global economic downturns. A recession could trigger a sharp correction, exposing the underlying overvaluation.
Bubble burst will have severe consequences: A housing market crash would have devastating consequences for homeowners, the economy, and social stability. We must prepare for this possibility, not celebrate a temporary rebound.
While some may see the December rebound as a sign of recovery, I urge caution. The Canadian housing market is walking a tightrope, and a 2024 bubble burst is a very real possibility. We must prioritize long-term stability over short-term gains and implement measures to address affordability and prevent another unsustainable boom-bust cycle.
This is my own opinion and I want to know your thoughts as well. @Catherineoneill416 @InvestorGirlDiana @Alessandrafiorilli
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2 Replies
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What are you thoughts on this? Here are my 2 cents.
I did see deals start appearing at the end of 2023. But the ones that came my way where deals that were priced well with a good contingency buffer for this type of environment. I think it is great to see deals that make sense. 👍
As for a bubble burst, Bank of Canada is still on a mission for quantitative tightening. IMO, they will probably give another 1 or 2 terms of no change and monitor inflation. This will allow for a good spring market. But I don’t see huge increases in the houses happening.
If interest rates do go down, it will create an large increase in property values which could be a disaster.
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Although they are looking at reducing the amount of immigration (via fewer foreign students, which will be very hard for universities that have come to rely on the tuition paid by foreign students), we still have so much need for housing, the minute the rates go down people will be back in the market.
There is so much focus on investing in the US for Ontario investors because of the better economics, I wonder if Ontario will get the investment it needs to pay for all the housing required. And without the supply, the government could use more policies to favour tenants, which further pushes investors out of Ontario.
I am spending some of my time this year learning about generational wealth, which seems to be based on getting a number of assets into the family over 1-3 generations and then steadily growing and borrowing against those assets. If anyone knows a lot of growing generational wealth, let me know!
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