Canada's Real Estate Bubble Just Got its Final BLOW: BMO

One of Canada's largest banks says the housing market will die at 10am on Wednesday, July 13, 2022. A note from BMO Capital Markets to investors on Friday morning basically said that. Affordability of Canadian housing was already stretched to the limit, requiring price cuts to keep things moving. Mortgage payments have now passed the late 1980s - Canada's most extreme bubble - following last week's rate hike. Additionally, that last bubble resulted in the worst price crash in the country's history.

The Canadian real estate market just received a technical knockout (TKO)

A fatal blow was delivered to Canadian real estate, though it was widely expected. The Bank of Canada (BoC) raised its overnight rate on Wednesday to the highest level since 2008. Thus, they hope to reduce "excess demand" and tame price growth's 40-year high. It will make it difficult for prices to rise (intentionally).

“Wednesday’s 100-bp rate hike by the Bank of Canada might be a TKO for the housing market (at least for anyone that had any doubt a correction is underway),” warns BMO senior economist Robert Kavcic. 

Before comparing the absurd valuations, he says, "The arithmetic makes it so.". 

Despite already stretched valuations, Canada's valuations have reached absurd levels

In order for prices to make sense, the bank's napkin math shows how much they would have to drop. Last year, an average-priced home in Ontario had a monthly mortgage payment of $3,000, he estimates. With today's mortgage rate of 4.5%, that same home will cost $4,700 per month. It's a record that blows past the real estate bubble of the late 1980s.

Source: betterdwelling

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