“There can all be a little doubt that the housing market in Canada is heading into a steep downturn,” David Rosenberg, the president, chief economist and strategist of Rosenberg Research, wrote in a note to clients on Friday.
“The bubble north of the border is far more acute and will pay a deeper price for the interest-rate hikes that have already been implemented.” Rosenberg pointed to the reality of Canadian home prices reaching far above the average income level throughout the country, especially when compared to those in the United States.
He cautioned that debt to disposable income in Canada is far greater than in the U.S. For every dollar Canadians earn, they owe $1.65 to debt, whereas Americans owe $1 to debt for every dollar they make, according to data from Havers Analytics.
“On a relative basis, Canada is extremely exposed compared to the United States,” Rosenberg stated.
The average price of a home in Canada is $640,479 as of September 2022, according to the Canadian Real Estate Association (CREA). In the country's more densely populated regions, like Toronto, the average home price remains well above $1 million, according to the Toronto Regional Real Estate Board.
Rosenberg is also concerned about the large amount of Canadians who have taken on variable interest rates for their home mortgages in comparison to Americans.
Slightly over one third of Canadians hold a variable rate mortgage that will be renewed within the tightened interest rate environment versus only the five per cent of U.S. homeowners who have a variable rate, according to Havers Analytics.
“That is an absolutely astonishing number. I’m talking about that 34 per cent share in mortgages that respond quickly to higher interest rates in Canada,” he stated.
The data also revealed that Canadians have tied 46 per cent of their assets to residential real estate and 55 per cent of their net worth is from housing.
This is double compared to their U.S. counterparts, the data showed.
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