Canada is the world’s second largest country by area and is rich in natural resources. It is a net exporter of energy and is home to the world’s third largest oil reserves.

Large primary industries are complemented by a highly developed service, manufacturing and retail sectors. Canada is considered a wealthy, stable and safe country. It ranks high in international measures of education, government transparency, civil liberties, quality of life, and economic freedom.

Canada weathered the global financial crisis better than many of its industrialised peers. The country’s strong and well regulated banking industry limited exposure to bad debt, while its natural resources and energy sectors benefited from surging demand in rapidly growing Asian economies. GDP dipped by just 2.8% in 2009, compared to falls of 3.1% in the US and 4.4% in the Euro area.

Canada’s residential markets proved resilient during the global economic downturn. House prices fell by just 9% between May 2008 and March 2009, in contrast to the US and UK, for example, which saw falls of 54% and 26% from peak to trough, respectively. Since 2009, Canada’s residential markets have recorded price growth of 26%, with values now 15% above their 2008 high, according to the MLS home price index. The market has remained fluid, with annual transaction levels relatively stable (see Graph 1).

Low interest rates and a resilient economy have supported the domestic market for housing. Meanwhile, international investors have sought out Canadian real estate as a ‘safe haven’ for their wealth at a time of global economic turmoil. They have been pouring money into Canada’s major cities. Pre-sales to international buyers have helped to forward-fund new schemes. Housing starts recovered quickly to pre-crunch levels after a brief slow down in 2009 (Graph 2). Migration and population growth has created demand and prevented oversupply.

A side effect of Canada’s buoyant residential market has been the accumulation of record-high household debt. Total credit market debt (including mortgages) stood at a record 163.7% of all disposable income in Q3 2013.

Despite this high level of personal indebtedness, levels of equity employed in home ownership is high; 41% of homeowners have no mortgage.

Canada has stringent rules on mortgage lending. Mortgages with deposits of less than 20% are required by law to be insured. The mortgage market remains healthy and defaults are low; just 0.3% of mortgages in 2013 – their lowest level since 2008.

As the Canadian economy rebalances from domestic, consumption-driven growth toward export-led growth following US and global economic recovery, the size of household debt is expected to reduce in relation to disposable income.

Taken from
Spotlight: Canada Residential Market - Spring 2014