What is a Real Estate Bubble?<\/strong><\/h2>\n\n\n\nA real estate bubble sometimes called a housing bubble, is when there is a high demand for housing or real estate but not enough supply. As the demand continues to increase, pricing increases due to the lack of inventory. Through this cycle, housing becomes unaffordable for the average buyer in the affected area. Real estate bubbles are temporary; however, they do have the potential to last for several years. <\/p>\n\n\n\n
If you\u2019re still not grasping what Canada’s real estate bubble can look like and how it may impact you, consider a giant balloon. The balloon continually inflates until it reaches a point where it can no longer stretch. The balloon is the real estate market. When prices rapidly rise (or continually inflate, like the balloon), the pressure can become too great, and the bubble (or balloon) can pop. If you’re thinking about a balloon, this can lead to a sudden and dramatic pop. Thinking about real estate can lead to a sharp price decline, high foreclosure rates, and significant financial loss.<\/p>\n\n\n\n
Why Do Real Estate Bubbles Happen?<\/strong><\/h2>\n\n\n\n![\"real](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2022\/01\/english-sold-home-data-1024x683.jpg\")
<\/figure>\n\n\n\nReal estate follows the same ‘supply and demand’ logic as many things in life. There becomes an overwhelming demand for a product (in this case, real estate), but buyers need more inventory to keep up with demand. <\/p>\n\n\n\n
This means that those looking to buy are struggling, and while they are still looking for a home, more and more Canadians are coming into the market also looking for a home. The demand increases, but the supply does not.\u00a0<\/p>\n\n\n\nRelated content<\/p>
Supply and Demand of Housing in Canada<\/a><\/p><\/section>\n\n\n\nAs a result, we see the real estate market getting competitive. Buyers are willing to spend more to get homes, so sellers increase their prices to maximum value. Sometimes this results in bidding wars, as we saw regularly during the COVID-19 pandemic, with homes in some major Canadian cities going for hundreds of thousands more than the original asking price. <\/p>\n\n\n\n
What Drives Housing Demand?<\/strong><\/h2>\n\n\n\nSeveral different factors can cause the lack of supply. These can include things like:<\/p>\n\n\n\n
- Earthquakes, floods, fires, or other types of natural disasters in which many people lose their homes and are displaced.<\/li>
- Lack of land to build new homes in a specific area<\/li>
- An economic rise that gives people more disposable income<\/li>
- Low mortgage rates or products with features make buying a home more affordable to the general population.<\/li>
- A specific demographic segment enters the housing market<\/li>
- Speculative behaviour by investors expecting increased home price appreciation<\/li><\/ul>\n\n\n\n
Other than more challenging situations, such as natural disasters, a real estate bubble is usually caused by several factors working together until it reaches the point of demand outweighing supply and creating the housing bubble.<\/p>\n\n\n\n
How Do You Know if a Real Estate Bubble May Burst?<\/strong><\/h2>\n\n\n\n![\"Canadian](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/09\/bigstock-154680398-1024x683.jpg\")
<\/figure>\n\n\n\nHousing bubbles can last for a few years, but they are temporary. So, how do you know when it’s going to burst?<\/p>\n\n\n\n
The bubble bursts when the market reaches a point where the demand will not fill. This can be caused by:<\/p>\n\n\n\n
- An increase in pricing and interest rates makes homeownership inaccessible<\/li>
- Homeowners find themselves unable to afford their homes thanks to increases in interest rates which can lead to defaulting on their mortgage and even foreclosures<\/li>
- A poor economy means less disposable income <\/li>
- The demand becomes exhausted<\/li><\/ul>\n\n\n\n
Ideally, at this point, things will have levelled off. However, they can also get worse, and as quickly as market prices increase, they can also decrease, leading to other problems.<\/p>\n\n\n\n
The most prominent example of this is the 2008 housing market crash in the United States of America. Years of low interest rates and relaxed mortgages lead to homebuyers overspending and borrowing beyond their means. In turn, this drove up the demand and, therefore, the prices of homes. <\/p>\n\n\n\n
This continued until prices got too high. People stopped buying; even those with the money for real estate investment realized the market had become too risky. The economy turned, and suddenly, homeowners found themselves unable to afford their homes. As a result, people sold off mortgage-backed securities, others defaulted on their mortgages, and there were unprecedented foreclosures. <\/p>\n\n\n\n
Can This Happen in Canada?<\/strong><\/h3>\n\n\n\nIt actually has happened before. Between 1989 and 1995, Canada faced a housing crash<\/a>, but it didn’t cause extreme damage overall. However, some areas, like Toronto, got hit pretty hard. For example, by August 1993, the average price of homes in Toronto had fallen by 28% from its highest point in April 1989, hitting a low of $189,000.<\/p>\n\n\n\nSince then, Canada’s real estate bubble began around 2002. This has made real estate unaffordable<\/a>, and some bigger financial institutions say we\u2019re on the cusp of a rental housing crisis<\/a>. So, this is easily why you may be hearing about real estate bubbles in Canada. This, combined with some drastic interest rate increases from the Bank of Canada<\/a>, we\u2019ve seen a slight price decline in homes in most major markets earlier this year.\u00a0<\/p>\n\n\n\nSo, many people feel worry that this could happen again. But, because most mortgage lenders in Canada have strict standards for borrowers, the chances that we\u2019ll see high levels of foreclosures are less. That, and because Canada’s economy is resilient in protecting homeowners during economic downturns.<\/p>\n\n\n\n
Final Thoughts<\/strong><\/h2>\n\n\n\nHousing bubbles can be stressful for those looking to buy a home and those already homeowners, especially if you are considering selling. So, what do you do if you’re living in Canada’s real estate or housing bubble?<\/p>\n\n\n\n
If you own a home, you might feel the temptation to sell as you see housing prices soaring well above what you paid or even the value of your home. However, unless you have another home to move into or something lined up, remember that prices are like this for a reason. There is a lack of supply, and by selling your home, you are adding yourself to that pool. You may have to pay more than you sold your house to find a new place.<\/p>\n\n\n\n
If you are a potential home buyer, it might be worth waiting out if you can. Chances are you are vastly overpaying for a home and risk not getting that value back when it comes time to sell. But ultimately, the best people to ask are those who are in your local market on a daily, aware of the market conditions and who knows your individual financial situation best.<\/p>\n","protected":false},"excerpt":{"rendered":"
Here’s everything you need to know if you keep hearing about real estate bubbles<\/p>\n","protected":false},"author":95,"featured_media":22876,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"guide":[],"class_list":["post-22875","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-trends"],"acf":[],"zolo_excerpt":"","_links":{"self":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/22875","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/users\/95"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/comments?post=22875"}],"version-history":[{"count":2,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/22875\/revisions"}],"predecessor-version":[{"id":22878,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/22875\/revisions\/22878"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media\/22876"}],"wp:attachment":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media?parent=22875"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/categories?post=22875"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/tags?post=22875"},{"taxonomy":"guide","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/guide?post=22875"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
<\/figure>\n\n\n\nReal estate follows the same ‘supply and demand’ logic as many things in life. There becomes an overwhelming demand for a product (in this case, real estate), but buyers need more inventory to keep up with demand. <\/p>\n\n\n\n
This means that those looking to buy are struggling, and while they are still looking for a home, more and more Canadians are coming into the market also looking for a home. The demand increases, but the supply does not.\u00a0<\/p>\n\n\n\n Related content<\/p> Supply and Demand of Housing in Canada<\/a><\/p><\/section>\n\n\n\n As a result, we see the real estate market getting competitive. Buyers are willing to spend more to get homes, so sellers increase their prices to maximum value. Sometimes this results in bidding wars, as we saw regularly during the COVID-19 pandemic, with homes in some major Canadian cities going for hundreds of thousands more than the original asking price. <\/p>\n\n\n\n Several different factors can cause the lack of supply. These can include things like:<\/p>\n\n\n\n Other than more challenging situations, such as natural disasters, a real estate bubble is usually caused by several factors working together until it reaches the point of demand outweighing supply and creating the housing bubble.<\/p>\n\n\n\n Housing bubbles can last for a few years, but they are temporary. So, how do you know when it’s going to burst?<\/p>\n\n\n\n The bubble bursts when the market reaches a point where the demand will not fill. This can be caused by:<\/p>\n\n\n\n Ideally, at this point, things will have levelled off. However, they can also get worse, and as quickly as market prices increase, they can also decrease, leading to other problems.<\/p>\n\n\n\n The most prominent example of this is the 2008 housing market crash in the United States of America. Years of low interest rates and relaxed mortgages lead to homebuyers overspending and borrowing beyond their means. In turn, this drove up the demand and, therefore, the prices of homes. <\/p>\n\n\n\n This continued until prices got too high. People stopped buying; even those with the money for real estate investment realized the market had become too risky. The economy turned, and suddenly, homeowners found themselves unable to afford their homes. As a result, people sold off mortgage-backed securities, others defaulted on their mortgages, and there were unprecedented foreclosures. <\/p>\n\n\n\n It actually has happened before. Between 1989 and 1995, Canada faced a housing crash<\/a>, but it didn’t cause extreme damage overall. However, some areas, like Toronto, got hit pretty hard. For example, by August 1993, the average price of homes in Toronto had fallen by 28% from its highest point in April 1989, hitting a low of $189,000.<\/p>\n\n\n\n Since then, Canada’s real estate bubble began around 2002. This has made real estate unaffordable<\/a>, and some bigger financial institutions say we\u2019re on the cusp of a rental housing crisis<\/a>. So, this is easily why you may be hearing about real estate bubbles in Canada. This, combined with some drastic interest rate increases from the Bank of Canada<\/a>, we\u2019ve seen a slight price decline in homes in most major markets earlier this year.\u00a0<\/p>\n\n\n\n So, many people feel worry that this could happen again. But, because most mortgage lenders in Canada have strict standards for borrowers, the chances that we\u2019ll see high levels of foreclosures are less. That, and because Canada’s economy is resilient in protecting homeowners during economic downturns.<\/p>\n\n\n\n Housing bubbles can be stressful for those looking to buy a home and those already homeowners, especially if you are considering selling. So, what do you do if you’re living in Canada’s real estate or housing bubble?<\/p>\n\n\n\n If you own a home, you might feel the temptation to sell as you see housing prices soaring well above what you paid or even the value of your home. However, unless you have another home to move into or something lined up, remember that prices are like this for a reason. There is a lack of supply, and by selling your home, you are adding yourself to that pool. You may have to pay more than you sold your house to find a new place.<\/p>\n\n\n\n If you are a potential home buyer, it might be worth waiting out if you can. Chances are you are vastly overpaying for a home and risk not getting that value back when it comes time to sell. But ultimately, the best people to ask are those who are in your local market on a daily, aware of the market conditions and who knows your individual financial situation best.<\/p>\n","protected":false},"excerpt":{"rendered":" Here’s everything you need to know if you keep hearing about real estate bubbles<\/p>\n","protected":false},"author":95,"featured_media":22876,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"guide":[],"class_list":["post-22875","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-trends"],"acf":[],"zolo_excerpt":"","_links":{"self":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/22875","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/users\/95"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/comments?post=22875"}],"version-history":[{"count":2,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/22875\/revisions"}],"predecessor-version":[{"id":22878,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/22875\/revisions\/22878"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media\/22876"}],"wp:attachment":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media?parent=22875"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/categories?post=22875"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/tags?post=22875"},{"taxonomy":"guide","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/guide?post=22875"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What Drives Housing Demand?<\/strong><\/h2>\n\n\n\n
How Do You Know if a Real Estate Bubble May Burst?<\/strong><\/h2>\n\n\n\n
<\/figure>\n\n\n\nCan This Happen in Canada?<\/strong><\/h3>\n\n\n\n
Final Thoughts<\/strong><\/h2>\n\n\n\n