Canada's Real Estate Bubble Won't Be Protected By Population Growth: BMO

• By Mike Heddle
• Posted Monday, May 09, 2022 10:28 am

Canada's Real Estate Bubble Won't Be Protected By Population Growth: BMO

Canadian real estate prices won’t correct due to population growth, right? Well, BMO Capital Markets shared a different take with institutions this morning. The bank explains there is no historical evidence to support this narrative. During the last significant home price crash, Canada saw its population grow at a faster rate. They warn interest rates have a far greater influence on home prices than population. 

Demand For Homes Has Plummeted Despite The Population Boom

Despite booming populations, Toronto and Vancouver’s latest numbers show a sales drop. The two cities report a couple weeks ahead of national data, but the same trend is expected. Higher interest rates killed demand for mortgages, but it’s too soon for that impact. Higher rates broke the speculative mindset, an issue BMO has argued would be the case, for months.

Before you crack open the emails to explain things are still busy, relax. BMO explains the drop in sales sounds larger than it is, due to a base effect. Volumes are still elevated but don’t dismiss the drop entirely. 

“Still, the drops are notable, with Toronto sales down more than 40% y/y, and that’s just the early days of higher rates,” says Douglas Porter, the bank’s chief economist.

Canadian Population Growth Has No Correlation With Home Prices

Just a blip, right? A bazillion immigrants are coming, creating a price floor that will stop prices from dropping. Let’s look past the fact a fifth of recent immigrants want to leave due to the cost of living. We’ll also gloss over the fact that studies show Canada is looking less competitive by the day. Heck, let’s even gloss over the poor value proposition for immigrants today. Let’s only focus on BMO’s latest chart showing no correlation between population and home prices. 

“Housing bulls are convinced that rising immigration tallies and strong population growth will keep a firm floor on the market,” he said. Adding, “Perhaps. But the attached chart shows zero correlation between population...[READ MORE]