What’s the deal with soaring property prices – shortage of supply or disorderly demand?

The 47% rise in the national average resale home price over the past two years is the result of a mismatch between supply and demand.

We all agree on that. Which leads people to wonder if the imbalance is caused by an insufficient supply of housing or an extreme demand for property. In this confrontation, I intervened last week with a Tweeter of a graph by BMO Nesbitt Burns that bore this title: “Could we PLEASE stop with this supply myth?”

The graph shows that the supply of homes in Canada is slightly below the average for Organization for Economic Co-operation and Development (OECD) countries, but in line with the United Kingdom, United States, Australia and New Zealand. Yes, we should do everything we can to encourage supply,” wrote BMO Chief Economist Douglas Porter. “But clearly there’s more at work here than that.”

The reaction to my tweet was strong on both sides of the debate, but that’s not what struck me. Rather, it is the obvious need that people should take the blame for the housing affordability problem.

It’s the government, it’s the realtors, it’s the lenders, it’s the investors, it’s the Bank of Canada for keeping interest rates low for so long. All of these actors and many more were blamed in the Twitter exchange, and all bear some responsibility, as declining housing affordability is a huge and complex issue.

But so does human nature, which doesn’t get much attention as a housing factor. Owning a home is a money maker and everyone wants a piece. The higher the prices, the greater the demand for housing. At the moment, demand is very far from normal.

My colleague Rachelle Younglai reported the other day that 15.5% of sole proprietors owned 31.1% of all residential properties in Ontario in 2019. In British Columbia, 15% of sole proprietors owned 29.1% of the stock provincial real estate. Purchases by individual real estate investors doubled in the first year of the pandemic and accounted for just over 20% of all purchases across the country in the first half of 2021.

We could definitely use more houses to meet all this demand, but let’s be realistic. Demand levels are not normal, just like the 47% price gain over the past two years is not normal. As Mr. Porter said, let’s encourage the construction of houses. But let’s also recognize that we would be building to meet demand that could decline rapidly. That’s the whole idea behind the Bank of Canada’s plus-size interest rate hike last week. Expect a few more before the end of the year.

Do you have a mortgage question?

Do you do mortgage shopping? Not sure whether to opt for fixed or variable? Wondering whether to get pre-approved? Not sure where to start shopping? A mortgage broker or your bank? A next episode of our stress test personal finance podcast for Gen Z and Millennials will look at mortgage basics for homebuyers. Send your mortgage questions to producer Emily Jackson at [email protected]

ICYMI (In case you missed it)…

The 2022 ETF Buyer’s Guide: Best Canadian Dividend ETFs


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Rob’s Personal Finance Reading List

“Housing is not a problem, it is an asset class”

A angry voice on the unaffordability of housing in Canada: “Houses exist to stimulate the economy and keep seniors afloat through paper earnings until the end of their retirement years. »

Four Dangerous Ideas People Have About Retirement

A reality check on inflation, investment returns and more for those thinking about how prepared they are for retirement.

Best brokers on fees and commissions

A ranking of brokers according to cost – who is the cheapest and what is the quality of the service?

Kitchen utensils worth trying

The best food processor, chef’s knife, rotisserie and more, as chosen by Food & Wine.


Ask Rob

Q: A reader recently expressed some concern after a financial planner asked him for his most recent tax return and notice of assessment, copies of his driver’s license or passport, a voided check, copies of wills and power of attorney documents. Is it normal to provide them when making a financial plan?

A: For the answers, I asked the planners in my LinkedIn community. Quite an interesting range of opinions on the need for a driver’s license/passport and a void check.

Do you have a question for me? Send me. Sorry I can’t answer each one personally. Questions and answers are edited for length and clarity.


Today’s financial tool

Tips for identifying emails, texts and phone calls from people try to scam you.


The cashless zone

A new cover of Bob Dylan I will be released by the Nitty Gritty Dirt Band and Larkin Poe, a sister band that blew the walls when I saw them at Folk Fest in Ottawa in the months leading up to the pandemic.


Tweet of the week

Prior to the Bank of Canada’s recent benchmark interest rate hike, I asked mortgage brokers how the rise in rates will affect variable rate mortgages. The responses highlight the importance of knowing how your mortgage works. A seasoned mortgage broker said many big-bank variable-rate mortgages keep payments the same when rates rise, but more of the payment goes to interest rather than principal. Alternative lenders tend to increase payments as rates rise.


what i wrote about
  • Do-it-yourself investors, now is the time to buy GICs. Yes, GICs
  • It’s time for banks to reverse a 2015 rate grab that punishes borrowers to this day
  • Who should be worried about the wave of rate hikes this year, who shouldn’t, and what should any stressed borrower do right now?

More Rob Carrick and Financial Hedging

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