The Canadian housing market: Icarus complex?

There are signs the real estate market may finally have stopped soaring



There’s a theory that whenever someone plans the world’s tallest skyscraper—whether it’s the Empire State Building in the late 1920s or the Burj Dubai in the mid-2000s—a financial disaster can’t be far behind. But could the same be true when it comes to over-the-top condo projects in Canada, a country many believe is in the grips of a massive real-estate bubble?

Barely a month ago, the developers behind the proposed E Condos in Toronto released a set of stylized renderings of the project, scheduled to be completed in 2017. They depicted two slender towers with glass-walled swimming pools that will partly overhang the sidewalk a dozen-or-so floors up, granting bathing-suit-clad residents “amazing underwater views of the city.”

It may just be a coincidence, but the eye candy appeared around the same time Toronto’s blazing real estate market finally began to lose steam. Sales in Toronto slumped 13 per cent during the month of June, with the biggest decline—18 per cent—coming in the city’s frothy condo sector, which Finance Minister Jim Flaherty has identified as a key source of concern.

The unexpected pause gave further ammunition to housing bears who suggest the Canadian housing bubble is set to burst—particularly since it comes on the heels of a drop in Vancouver, where sales recently hit a 10-year low. Moreover, the decline in activity in both cities (although not yet in prices) came before changes Flaherty recently announced to mortgage insurance rules came into effect this week. They include a maximum amortization period for government-backed mortgages of 25 years, compared to 30 years previously.

Garth Turner, a former MP and noted housing market critic, wrote on his blog that it all adds up to the arrival of a “Bre-X moment,” where Canadians suddenly realize the housing market is built on sand, not bedrock. CIBC deputy chief economist Benjamin Tal was less dire. He suggested a “softening” market followed by falling house prices, despite the continued existence of ultra-low interest rates. Either way, it promises to be a lot less fun than a swimming pool in the sky.


The Canadian housing market: Icarus complex?

  1. Bring on the housing market collapse! After the dust settles it may be possible to live in a city again without throwing yourself into debt so deep you never come out.

    It’ll suck for those who bought houses at the peak of the market, to be sure. But prices have got so out of hand, all my sympathy for those who helped them get there has run out.

  2. I think we may be getting a little ahead of themselves. The summer months are usually slower months for real estate. Also if things continue to pick up in the USA and they begin to do more importing and exporting to / from Canada will help. With Canada bonds going for cheap cheap, lots of money is going to have to find a home. The banks can offset what changes Flaherty has done with his mortgage rules.

    The Government has insured may of these mortgages and has also bought other debt from the banks to keep them healthy.

    If the Canadian real estate were to happen, is the Canadian Government (Canadian People) are on the hook.

    Then guess what? Taxes go up or services go down. Unfortunately we can’t have it both ways.

    • The summer months are slower for real estate? What planet do you live on?

      • Agreed this person obviously has no real understanding of real estate or its trends.

      • Clearly the deep freeze of february is when people love to shop for homes.

  3. Never any mention of the baby boomers? With million dollar big city homes selling for $300,000 in outlying towns and cities and, the econoomy in the tank, how attractive will it be to leave the smog and congestion pocketing an extra $700,000 for retirement.

    With always with the boomers the eldest (and first out) will make out like bandits. A better analogy than a bubble bursting is going to be a complete meltdown.