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Canadian Real Estate Prices Have Synchronized, Meaning Bubble Risk Just Soared – Better Dwelling



Montreal is the next Manhattan. Or maybe Winnipeg. Sorry, it’s definitely St. Johns. Wait… what’s happening? Real estate prices are rising pretty much across the country. Canadian real estate prices are showing the highest level of price synchronization in years. This is when markets, regardless of location, begin to show similar levels of price growth.

Asset price synchronization typically indicates market participants have become irrational. That’s not just a problem because high prices impact affordability. It means all markets are more likely to be vulnerable to a single shock factor. It’s like putting all of your mortgages in one basket. 

Efficient Markets and Synchronization Risk 

We need to get nerdy for a second, so bare with us. The efficient market hypothesis is the belief asset prices reflect all available material. If someone mis-prices an asset (sells too low or too high), it’s just an outlier the rest of the market will fix. Therefore, the price is always correct. It’s never wrong, because there’s not enough irrational players to skew the market. As ridiculous as it sounds, it’s the most common belief. Despite foundational economists like Adam Smith and John Maynard Keynes saying irrational behavior has a significant impact on markets, and that’s why bubbles exist. 

In behavioral finance, they believe we’re just chimps in pants. We’re prone to making mistakes, and people will mimic each other’s behavior. One of those mistakes is knowing something doesn’t make sense, but pursuing it anyway. In this case, people chase the same opportunities as their friends, without rationale… like buying a Nickelback album. This is called synchronization, and it results in the mis-pricing of assets.

The more synchronized markets are, the more likely people are disregarding rational behavior. Markets may have common factors, but they’re all unique. For example, a high demand housing market shouldn’t rise with a market that’s losing people. Synchronized behavior doesn’t consider those factors. Usually every market will have a similar reason for why prices are rising or falling together. You think home prices should rise in an area with a declining population, because debt is cheap? Cute.

How Do We Identify Synchronization?

Okay, so how do we identify these risks? A lot of ways, but today we’re going to look at price growth synchronization. We’re going to look at the relationship between national, city, and rural. There’s 46 markets used in today’s analysis, grouped by economic region. For institutional subscribers, individual cities are already on the portal. We’ll also share a further breakdown on Twitter next week, for our Twitter fam.

Note the index is experimental right now, but we’ll be fine tuning it for more regular updates.

How do you read the data? We used a standard scale that starts at -1 and goes up to +1. If the correlation coefficient is -1, it means there’s a perfect negative correlation. In this case, that would mean a regional market showed price growth that was perfectly inverse to the national growth trend. That is, if national home prices increased, the market dropped perfectly in sync, and vice versa. 

If the correlation coefficient is 1, it means the market is highly synchronized with the national price movement. If national prices rise, so does the regional market. If national prices fall, so does the regional market. This would mean the market is likely to be emotionally driven. 

There’s also degrees of correlation,  depending on where the correlation coefficient is.


  • Very Highly:   0.9 to 1.0 
  • Highly  0.7 to 0.9 
  • Moderate:  0.5 to 0.7
  • Low:   0.3 o 0.5
  • None found: 0.0 to 0.3

Inverse Correlation: 

  • None found 0.0 to -0.3 
  • Low   -0.3 to 0.5
  • Moderate -0.5 to 0.7
  • Highly  -0.7 to 0.9
  • Very Highly   -0.9 to 1.0

Canadian Real Estate Prices Show High Synchronization Risk

Canadian real estate markets were the most synchronized since the Great Recession. Price growth of markets printed a correlation coefficient of 0.97 in January. This is the most highly synchronized the markets have been since June 2010. The index only became highly synchronized in September 2020, and very highly in November 2020. If you’ve spoken to a Canadian, you’ve probably realized they all think they live in the next hot market. Even the markets with negative population growth, and fleeing young people.

Canadian Real Estate Synchronization Risk

The degree of synchronization between National price growth, and regional growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Ontario’s Suburbs Show High Synchronization Risk

Ontario’s real estate markets have seen this level of synchronization recently. It’s a little different this time though. The market’s print was 0.95 for January, indicating it was very highly synchronized to the national trend. The market became highly synchronized in Aug 2020, and very highly by November. This isn’t as distant of a phenomenon for Ontario, with these levels last seen in 2018.

Ontario Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Ontario real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

One big difference is Toronto is largely left out of this trend this time. The city only printed a 0.78 score for January, the lowest level since November 2019. As recently as May 2020, it showed a 0.99 score. Removing Toronto from the index highlights how much of an outlier the region is. 

The spread between Ontario’s least and most correlated market is 119%. This means the market most synchronized to the national trend is more than double the least synchronized. If Greater Toronto and Oakville are removed, the spread drops to just 17%. Both regions had very large surges in price growth in 2017. However, currently condo apartments are lagging in growth. Toronto’s condos printed the first negative price growth in years recently.

BC Real Estate Is Frequently Synchronized To The National Trend

BC real estate is frequently correlated with national price trends, unlike most regions. The market printed 0.93 in January, showing it was very highly synchronized. When Lower Mainland is excluded, that number bumps higher to 0.95. Once again, this is likely to do with slower city sales, especially in the condo apartment segment.  

BC Real Estate Synchronization Risk

The degree of synchronization between National price growth, and BC real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Greater Vancouver is a huge drag on the numbers, actually diverging from the trend. The region’s correlation coefficient was 0.82 in January, which is highly synchronized. It’s just not at the same level as the rest of the province. As recently as October 2020 it was 0.91, and was 0.99 in March 2020. Before the pandemic, it was basically driving the trend. The drop most likely has to do with slower condo apartment demand.

Quebec Real Estate Has The Highest Synchronization Risk Since The Great Recession

Quebec real estate is highly synchronized to the national price growth trend. The province’s score was 0.94 in January, indicating a very high level of synchronization. The level was last this high in June 2010. Prior to 2019, that was peak price growth for the region.

Quebec Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Quebec real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Prairie Real Estate Shows Highest Synchronization Since Peak Oil

The Prairies showed the highest synchronization with national prices in almost a decade. The index printed 0.93 for January, a level not seen since December 2011. That would have been right around peak oil prices.

Prairie Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Prairie real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Atlantic Canada Shows Highest Synchronization In At Least 16 Years

Even Atlantic Canada is showing synchronized price growth, which is rare. The region came in at 0.96 for January, indicating it was very highly synchronized. This is new territory, with no prior connection to national price growth since at least 2005.

Atlantic Canadian Real Estate Synchronization Risk

The degree of synchronization between National price growth, and Atlantic Canadian real estate price growth. Higher index scores mean more synchronization, and lower means less.

Source: Better Dwelling.

Synchronization of asset price growth across markets is never a good thing, and there’s a reason it’s a whole branch of risk. It’s typically indicative of overly loose policy, excessive leverage, and irrational behavior. More important, it means people are piling into a similar type of risk. This means the odds of a single vulnerability impacting all markets increases.

While that sounds all theoretical, it gets less so when you realize even banks have begun to warn. BMO recently said if mortgage rates stay the same and prices continue, affordability reaches classic bubble territory next year. If mortgage rates increase to pre-pandemic levels, it also becomes a classic bubble. At least you’re all in this together.

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Budget Tips Canadians Should Consider Before Renovating Their Home



Budget Tips

The decision to undergo a home renovation project should be exercised with an equal amount of excitement and caution. Most renovations require dealing with the foundation, plumbing, or electrical within the home, producing significant costs.

Canadians should approach each renovation with a firm understanding of their finances, especially if the project will involve a contractor or paid professional. To make sure you’re on the right track, these budget tips can help.

1.   Estimate Your Costs

If you’re considering a renovation on your home you’ve likely come up with temporary plans and dreamed-up colour schemes and design ideas. The next step is evaluating the costs for each renovation to determine if you have the financials you need to get started.

When it comes to budgeting for a home renovation, it’s important to overprepare — creating a spreadsheet outlining each project and your projected costs will help you visualize your expenses. Once you have your costs in front of you, you’ll want to pad your budget slightly. Renovations are synonymous with surprises and inflated costs, and it’s always better to be overprepared.

2.   Find Savings with DIY

One of the simplest ways to lower your renovation expenses is to take on specific projects yourself. The DIY approach can range from construction-based projects to simply painting the walls or re-furnishing your old furniture — it all depends on how handy you are and the time you have to contribute to the project. If you can manage to save money on professional painters or lessen the number of construction workers on any project, your chances of saving money are far more significant.

3.   Know Your Financing Options

Ideally, you’ll want to have as much money saved as possible before undergoing any projects in your home. Every household is unique, which means your financing options may vary from your neighbours. What you’ll need to ask yourselves is, how much money will you require to complete this renovation and will you be able to pay back potential loans?

Homeowners are looking for alternative lending options that don’t require the stress and time that can come with traditional lenders — extensive interviews, paperwork, and the time it takes to receive any cash is unfavourable for most.

These days, homeowners are looking at online-only lenders like for a faster, more convenient way to access the money they need to complete their projects. The new wave of lenders is focused on helping borrowers access the cash they need quickly and without the added stress of waiting and wondering if they’ve been approved. It’s easier to focus on what needs to be done in your home when you have the funds you need to get the job done.

4.   Shopping Second-Hand

The idea of second-hand is still new for many homeowners, who are hesitant to purchase things for their homes that have been previously used. The reality is that second-hand goods are a beneficial tool for anyone looking to save money on their renovation. With some time and patience, you could find great deals on appliances, furniture, and home decor. With the extra savings, you can focus on the areas of the home that need the additional capital — or, if you’re right on budget, any money you’ve saved could go into a savings or investment account.

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The housing boom, central banks and the inflation conundrum



By Sujata Rao

LONDON (Reuters) -A multi-year boom in global house prices which even a pandemic has failed to halt is forcing central banks around the world to confront a knotty question – what, if anything, should they be doing about it?

The surge in property values from Australia to Sweden is often viewed benignly by governments as creating wealth. But history also shows the risk of de-stabilising bubbles and the high social cost as millions find home ownership unaffordable.

The irony is that while the cheap money created by low or negative interest rates has driven the price rises, they barely figure in central banks’ calculations of inflation, one of the key drivers of their monetary policy.

While housing costs, whether rent or home repairs, are assigned varying weights in inflation indices ranging from 40%-plus in the United States to 6.5% in the euro zone, house prices themselves are left out. As they spiral higher and higher, many argue this is no longer tenable.

“The debate of whether we actually are reflecting inflation properly will come up more and more. House prices will start getting a lot of attention,” said Manoj Pradhan, co-author of a book called The Great Demographic Reversal, which predicts a global inflation resurgence in coming years.

Global residential property prices have risen 60% in the past 10 years, according to a Knight Frank index. In 2020, even as COVID-19 choked the world economy, they climbed an average 5.6%, with 20%-30% jumps in some markets.

While low interest rates have long been the main driver of the rally, existing government subsidies for home ownership and more recently pandemic-era support such as suspending property taxes have been factors too.

Many of these one-off support measures will start to be wound down, but governments often fight shy of politically tricky measures to keep a lid more firmly on prices, such as banning multiple property ownership or easing building regulations.

That raises the question of what central banks can do.


New Zealand’s government fired the first salvo in February when it told its central bank to consider the impact of interest rates on house prices, which soared 23% last year.

Others are considering the question too. European Central Bank President Christine Lagarde said last week that measuring housing’s role in the rising cost of living had emerged as a key point in a strategic policy review due to be unveiled this year.

If real inflation is higher than the official consumer price index is measuring, it could imply that central bank or government policies are more expansionary than they should be.

“If housing does not signal inflation via the CPI, then the economy is more likely to run hot, and what you get over time is generalised inflation pressures,” Pradhan said.

At present rental inflation is subdued due to pandemic hardship, or because low interest rates and remote working are encouraging home-buying.

Morgan Stanley’s chief cross-asset strategist Andrew Sheets said this may be giving a misleading signal. “The rental market will be weak and the housing market will be strong and that (rental weakness) could show up as a disinflationary force.”

There are strong arguments for excluding headline shifts in house prices from inflation indexes. Housing is, for most people a lifetime purchase rather than an ongoing expense, which they are designed to gauge.

Including house prices in the inflation measures central banks use to guide policy is also widely seen as impractical, given their extreme volatility.

More central banks may however consider adapting inflation indices to include a measure of the costs associated with living in one’s own home, such as maintenance and home improvements.

At present, inflation measures used by the Fed, the Bank of Japan, New Zealand and Australia include so-called owner-occupier costs. But the gauge employed by the Bank of England does not, and they are also not factored into the main inflation measure used by the ECB.

The ECB has argued for their inclusion, but collecting timely data from 19 countries and differing home ownership levels across the bloc would complicate the task.

Crucially, economists believe including these costs might have lifted euro zone inflation by 0.2 to 0.3 percentage points, taking the ECB nearer its elusive inflation target of close to 2%.


Ultimately, such policymaking shifts may be risky amid uncertainty created by the pandemic.

Adding property prices to CPI indexes just as long-dormant inflation finally awakes could send readings soaring, heaping pressure on central banks to tighten policy even as economies nurse pandemic-time wounds.

Some analysts, such as at ING Bank, predict that with some exceptions housing rallies may anyway start to cool as support measures introduced during the pandemic are unwound.

Voters’ anger may even goad governments into slugging property investors with higher taxes – as New Zealand did at the end of March.

Those who argue against extending central bank remits further into housing say tighter policy could even exacerbate the problem by crimping property supply.

George Washington University professor Danny Leipziger argues housing markets are more effectively cooled by regulation and measures outside central banks’ scope, such as raising capital gains taxes and increasing the supply of housing.

“I have no problem with the ECB adding rental or home-owners’ costs to its basket,” Leipziger said. “But if I am concerned about house prices in Berlin or Madrid, asking the ECB to deal with it is not the right way.”

(Additional reporting by Dhara Ranasinghe and David Milliken; Editing by Mark John and Jan Harvey)

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Real eState

Canadian home prices on fire and policymakers using ‘squirt gun’



By Julie Gordon

OTTAWA (Reuters) -Buyers are turning up the heat on Canada‘s searing hot housing market, their frenzy leading to record sales, prices and starts, but in a budget unveiled on Monday the federal government did little to tamp down the fire.

The Teranet-National Bank Composite House Price Index showed home price gains accelerated 1.5% in March from February, data released on Tuesday showed.

The index was up 10.8% on the year, with a record 81% of the broader 32 markets surveyed posting annual gains above 10%. That far exceeds the last peak in 2017.

On Monday, Finance Minister Chrystia Freeland, presenting Canada‘s first budget in over two years, fleshed out a previously announced tax on foreigners parking money in Canadian homes, along with limited investments in affordable housing.

“The idea here is that homes are for Canadians to live in. They are not assets for parking offshore money,” Freeland told reporters.

For those watching, it was nowhere near enough.

“It’s like a squirt gun next to a towering inferno,” said Doug Porter, chief economist at BMO Capital Markets.

“We need to break the psychology that real estate is this can’t lose investment that only goes up,” he added. “Before this turns into a full-on bubble.”

March was a record month for new housing starts and home resale prices surged 31.6% year-over-year.

New Zealand, facing a similarly red hot market, introduced a raft of cooling measures including new taxes on investors and stricter lending rules.

While the Bank of Canada has become increasingly vocal on the issue, it has also pledged to keep interest rates at record lows into 2023. It will update its forecasts Wednesday.

And most measures that would cool the frenzy are up to the provinces and federal government who remain cautious as a third wave of COVID-19 rages.

Real estate agents say more listing are now coming to market, but they still see a massive long-term shortage. They expected more than the 35,000 units pledged in the budget.

“It’s not going to do much to intervene in the activity level we’re seeing now across the country,” said Christopher Alexander of RE/MAX Ontario-Atlantic.

(Reporting by Julie Gordon in OttawaEditing by David Gregorio and Alistair Bell)

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