Stunning Surge: Canadian House Prices Soar 20% in a Year

The Canadian real estate market is on fire, with the average price of a home hitting a record high of $816,720 in February, representing a staggering 20% increase compared to the previous year. According to...

The Canadian real estate market is on fire, with the average price of a home hitting a record high of $816,720 in February, representing a staggering 20% increase compared to the previous year. According to the Canadian Real Estate Association, last month saw the second-highest number of home sales ever recorded, just shy of the all-time high seen in the previous year. These impressive figures suggest that the market's momentum is likely to spill over into March, setting the stage for continued strong sales. However, these numbers come with a caveat, as they are heavily influenced by the pricey markets in Toronto and Vancouver.

A Deeper Look: Canadian Real Estate Association's Insights

The Canadian Real Estate Association (CREA) reminds us that the average selling price can be misleading due to the dominance of sales in expensive markets like Toronto and Vancouver. By excluding these two cities, the average price drops significantly by over $178,000. To provide a more accurate representation of the market, CREA has developed the House Price Index, which takes into account variations in housing type and volume. This index has also been skyrocketing, surging 29% since last year, including a record-breaking 3.5% increase in February alone.

Unprecedented Impact: The Pandemic's Influence on the Housing Market

The COVID-19 pandemic has had an unexpected impact on the Canadian housing market. Initially, sales volumes and price growth slumped as uncertainty led buyers to adopt a cautious approach. However, in the nearly two years since, the market has experienced a remarkable rebound. This surge can be attributed to historically low borrowing costs, maintained to stimulate the economy during the pandemic, which have fueled an insatiable demand for housing.

Navigating the Frenzy: Unconventional Methods

Finding a home amidst this frenzy can be challenging, prompting some buyers to turn to unconventional methods to secure a place in the market. Lauren Schreiber and her husband, for instance, have repeatedly been outbid on houses in Toronto, where average prices exceed $1 million. Their solution? Partnering with a company called Ourboro, which helps prospective buyers generate cash for a down payment in exchange for an equity stake in the home. While this approach comes with certain risks, the couple is grateful for any assistance that can help them escape their cramped apartment and create a sense of security for their family.

Innovative Solutions: The Rise of Alternative Models

Ourboro is not the only company providing innovative solutions to aid homebuyers. Options For Homes, for instance, has been implementing a similar model for years, offering buyers higher down payments in exchange for equity stakes in the property. Unlike Ourboro, Options For Homes is also the developer behind the condos it sells. This unique approach has enabled many individuals, like Torontonian Heather Benway, to invest at a young age, learn about budgeting and saving, and ultimately secure their financial future.

A Looming Reckoning: Rising Interest Rates

Despite the current buoyant market, homeowners with mortgages face a potential reckoning. The Bank of Canada recently raised its benchmark interest rate for the first time in two years, signaling the end of an era of historically low borrowing costs. Economists predict that several additional rate hikes may follow throughout the year, potentially pushing the central bank's interest rate to two percent. These changes could have a profound impact on the market, potentially dampening demand and restoring balance as buyers adjust to higher borrowing costs.

Hot Markets and Affordable Options

While the surge in home prices is evident nationwide, one market stands out. Calgary is experiencing an astonishing annualized price increase of almost 35% over the past three months, the highest rate since 2006. Relative affordability and the resurgence of $100 oil have made the city an attractive destination for investors.

For buyers like Nathaly and Rob Turner, who were previously priced out in Ottawa, Calgary's more affordable housing market has provided a much-needed opportunity to own a home. With a benchmark house price of just over $487,000, they have finally found a place they can call their own and achieve the security and stability they've been longing for.

A for-sale sign is pictured outside a home in Toronto on March 2, 2022. A for-sale sign is pictured outside a home in Toronto on March 2, 2022.

The Bank of Canada, led by Tiff Macklem, recently hiked its benchmark interest rate for the first time in two years. The Bank of Canada, led by Tiff Macklem, recently hiked its benchmark interest rate for the first time in two years.

The Canadian housing market continues to captivate, with record-breaking prices and unabated demand. As the market evolves and adapts to changing circumstances, only time will tell whether this surge will continue or if a correction is on the horizon. For now, buyers and sellers alike navigate this whirlwind with anticipation, hoping to secure their place in a market that shows no signs of slowing down.

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