Purchasing real estate in Canada is quite expensive.
Canadian real estate has remained very high for many years.
There are quite a few factors that are affecting these higher costs.
We will take a look into what causes these higher-priced homes and if there is anything that you can do to get a deal on a property in Canada.
If you are thinking of moving to Canada or selling your home in Canada, these are all tips and thoughts that you are going to want to consider.
Why Are Homes in Canada So Expensive?
1. Supply and Demand
As with most things related to pricing and economics, the theory of supply and demand applies to the Canadian housing market.
The supply of homes in Canada is never as great as the demand.
Since the demand is so high, it is easy for realtors and homeowners to set the prices of their homes higher and higher.
The concept of supply and demand is very simple.
If there are not very many homes for sale, the prices for them are going to be higher.
This is a power that the seller has since they have goods that are hard to produce.
The problem with something like supply and demand is that there really is no cap to it.
This is called a seller’s market, and truly, sellers sometimes have too much power.
The prices for homes start to get a bit outrageous.
They have become so outrageous, in fact, that it makes other people think about selling their homes to be able to make a large profit.
Of course, the tough part here is that, even if you sell your home for a high profit, where will you go?
Those moving out of Canada who don’t have to worry about finding another home in Canada can take advantage of these prices.
For those looking to stay, the market inventory at their new price level needs to be considered.
The concept of supply and demand seems to have been raising prices on Canadian real estate for the last ten or more years.
As you will see from some of our other reasons as to why the pricing in Canada is so extreme, there are many reasons for this issue of supply and demand.
2. Low Interest Rates
Low interest rates are something that many countries are experiencing at this time.
The lower the interest rate, the cheaper it is to borrow money to buy a house.
When it is cheap to borrow money to purchase a house, buyers can think about spending more than they once did.
In addition, a large group of people who thought they couldn’t afford a home now suddenly have enough money to make it work.
Low interest rates are a great thing for buyers, but those buyers usually end up paying quite a bit more for the house that they purchase.
In times of higher interest rates, the total prices of the homes have to stay a little lower.
People realize that they can’t afford the same amount because of the high cost of borrowing money.
When people purchase a home, they mostly choose a 30-year mortgage.
This means they have 30 years to pay off the large loan that they have on a home.
Over 30 years, a homeowner will pay a large amount of interest.
If that interest rate is calculated at 3% or 6%, it will make a large difference in the total amount of money that is paid for the home.
Most people don’t think about this when they purchase a home.
The most common thought is what the monthly payment is and whether or not it is affordable.
However, thinking about eventually repaying this loan is just as important.
The goal is to someday no longer have a mortgage and to be debt-free on your home.
The problem with low interest rates is that it sometimes makes people purchase homes that they will never be able to pay off, and that is unfortunate.
3. High Salaries
There are some very high-paying jobs in Canada.
If people make more money, then they have more money to invest in a house, and the houses are going to cost more to purchase.
Overall, there is a good amount of wealth in Canada.
The country is rather prosperous, and many of the residents have high-paying jobs or large companies that they own.
Canadians do a lot of business with the United States, and the proximity of the two countries makes it easier for them to work together and for Canada to prosper.
More and more companies are moving to Canada and bringing their high-paying jobs with them.
Also, with the increase of remote work, you can work anywhere in the country and live in Canada.
Canadians are very serious about their education system, and therefore, those who are educated through that system tend to have an easier time getting higher-paying jobs.
Ultimately, if there are people with money, they will want nice homes that have all the necessary amenities.
In the end, this is going to continue to drive up the pricing of real estate in Canada.
4. Taxes and Fees Involved
One other reason homes are so expensive in Canada is that there are taxes and fees involved with purchasing a home.
Unfortunately, not all of these fees are going to be the same throughout the country.
Just as taxes are different in each state, taxes are also different across the provinces in Canada.
Most of these taxes are not all that high when you look at taxes around the world, but there are quite a few fees involved with the purchase of a home.
In fact, many people will quickly realize that the price of closing can put them out of qualification for a mortgage.
If you qualify for a home loan of $200,000 and then find that the closing costs will be another $15,000, you may no longer have enough money to close on the house.
All taxes and fees need to be considered before making an offer on a home.
For people in Canada, the taxes and fees are inherently higher because they are usually based on a percentage.
The pricing of the house is so high that the percentage people pay is also relatively high.
In other words, one percent may not seem like a lot until you consider the fact that the price of the home is $1.5 million.
This pricing makes the fees seem relatively higher and harder to afford.
The taxes and fees will make purchasing a house a big part of the overall decision to purchase a home.
If you can’t justify these fees, you may stay a renter for a little while longer.
5. Building Materials for Harsh Climate
Canada is pretty far north.
This means that most areas in Canada are going to see a wide range of climate and weather conditions throughout the course of a year.
The home will need to have systems to handle hot times and, most importantly, cold weather.
This means that insulation and systems within the home are going to be essential.
When homes are first built, these high-quality building materials are going to be higher in price.
The cost of using the better materials will certainly pay off in the long run.
However, it does make the upfront cost of the home quite a bit higher.
The same can be said for areas where the homes need to be built with extra protection from hurricanes or even tornadoes.
Anytime the final build of a home is modified to deal with climate or weather conditions, the price of the finished home will likely be a bit higher.
We can say without a doubt that these modifications are necessary for a Canadian home.
The winters tend to be quite rough, depending on the location in Canada.
This is why things like ice hockey are so popular in Canada.
The only way to save money on things like this is to build your own home and install these high-end features yourself.
This is hard to do and not a realistic option for most people.
6. Low Unemployment
Remember when we said we would start to explain a bit more about why the supply of homes in Canada is low?
Well, the low unemployment rate is a huge reason.
In Canada, the job market is doing quite well.
People who want to work are getting the opportunity to work.
There are jobs out there that are good, and they pay quite well.
When people have confidence in their job and the ability to get another job should they lose one, they will be more likely to invest in a house.
When there is not much job security and higher unemployment, people like the fact that a rental can always be changed or even shared with friends.
When it comes to a house, if you have a break in employment, it is hard to keep up with all the expenses and responsibilities.
With a rental, you can usually leave to find a cheaper one.
Essentially, we have seen that, statistically, areas with low unemployment tend to have a hard time keeping a reliable supply of homes on the market.
These homes are going to be high in price because there are not many of them,
The homes go up in price because people have the money to pay for them.
The cycle essentially continues to repeat until there is some sort of a break or change in the market.
For Canadians, most would rather pay a bit more for a home and have access to great jobs than to lose their job and have a cheaper house.
With the COVID-19 Pandemic, the Canadian job market took a bit of a hit.
However, the market responded quickly and started to recover without much trouble.
This has shown, once again, the strong economy of the country of Canada and how the real estate market is probably going to remain in good shape for years to come.
If you are thinking of purchasing a home in Canada, it probably won’t pay off to wait for the prices to go down.
They seem to be holding steady for many years.
7. Population Growth Increasing Competition
Here is yet another reason that supply and demand remain an issue in Canadian real estate.
People are migrating to Canada rather quickly.
Several reasons may be causing this to happen.
Some are living in the United States and think that the political systems in Canada are a bit better.
Others find that there is a job or a lifestyle that brings them to Canada.
As is pretty well recognized and known worldwide, the Canadian health care system is quite well done.
People with certain medical issues find that Canada can be a better place for them to live.
All of these reasons and others are bringing people to Canada.
With the increase in the population, the pricing continues to go up for a home in Canada.
It is important to remember that, when the population increases, it means that there is something desirable about the location.
Canada is becoming more and more desirable for certain groups of people to live.
This helps to increase the pricing of the homes.
One of the main selling points for real estate is location.
If you are not located in a great spot, it is hard to get people to purchase your home.
If you are in an area to which people are continually migrating, you can charge much more for a home for sale.
As long as the population continues to increase in this way, you can expect that the real estate prices are going to remain high.
8. Aging in Place
Aging in place is a concept that is becoming popular in quite a few areas.
The idea is that, as a person gets older, they remain in their home.
For many years, people from Canada or even the Northern United States would migrate south to the warmer weather as they got older.
The concept was that the warmer weather allows for more enjoyment outdoors, and it can be a better way to spend the end of our lives.
However, this concept and theory are changing a bit.
Some places, like Florida, California, and Arizona, are quickly becoming overpopulated.
Some people who spent their entire lives in the snow and ice actually realize they enjoy the snow and the ice.
Having to move as an older person can be stressful and ultimately not preferred.
This means that more and more older people are staying in their homes and aging in place.
Of course, what this means for the housing market is a decrease in the number of homes available.
People are purchasing a home and then choosing to live the remainder of their life in that home.
This is a big decision to make, and it also helps people justify the price they pay for a place.
If a person is 35 and thinks they will stay in their home for the next 60 years, paying $700,000 for it seems reasonable.
However, if the person plans to only live there 15 years before moving somewhere warmer, the price paid may seem a little steep.
These are just concepts that play into the overall costs that we see in the Canadian housing market and the continued increase in the pricing.
9. Real Estate Investors Getting Involved in Market
Real estate investors get involved in a real estate market because they want to make money.
When a real estate investor purchases a property, they are either looking to flip it, rent out the units, or hold onto it and eventually flip the property for a profit.
However you look at it, real estate investors are looking to make money.
The problem is that, when they flood the market, it starts to make it hard for the average buyer to find a place.
Not only are there fewer houses for sale, but these investors tend to have stronger offers to bring to the table.
Many of the investors deal with cash, and they won’t need mortgages for their homes.
If they attempt to purchase a property for $600,000 cash, it will beat out most financing deals.
For a first-time homebuyer who may not have very much money to put down, it becomes almost impossible to find a house that they can compete on.
Another problem with investors is that they go into these homes that would potentially need a bit of work, clean them up, and then flip them for a high profit.
Although it is nice that the new homeowners will not have much work to do, some can’t afford this concept.
Essentially, if you are looking for a deal on the house, you need something that needs a bit of work done.
If you are handy and can do the work yourself, you will turn a good profit.
These houses are getting difficult to find because the investors are grabbing them sometimes before they even hit the market.
Real estate investors see the market’s strength, and they know that their money will be safe in a long-term Canadian real estate investment.
This floods the market with investors and leaves people with very few choices when they are looking for a new home.
10. Popular Place to Live
Last but certainly not least, homes are expensive in Canada because it is a popular place to live.
There is quite a bit of natural beauty in Canada, and there is good access to jobs.
People there tend to claim that their lives are good, safe, and secure.
There are lots of beautiful places you can travel to quite easily from Canada, and it is a nice place to raise a family.
Canada gives people a great mix of expansive cities with rural farmland.
Regardless of the type of lifestyle you would like to have, you can have it while living in Canada.
Canada has a good education system and healthcare, and this makes it a popular place to live.
Many people will travel to Canada on vacation and then end up staying there for years.
Until people start to think of Canada as a place to move away from, we probably won’t see too much of a change in real estate pricing.
As you can see, there are lots of good reasons behind the price of Canadian real estate being so high.
If you are thinking of purchasing a home in Canada, be prepared for it to be expensive.
The good news is that you will likely have it for years to come and be living in a beautiful and safe area of the world.