I worry for renters trying to buy property and our children who have little or no earnings power. The U.S. housing market might eventually get as hot as the Canadian housing market. If so, U.S. housing prices easily see at least 30% – 50% upside.
After all, the median home price in Canada is about 50% higher than the median home price in the U.S.. However, the U.S. has stronger income and employment opportunities! Name two Canadian companies that pay well. I bet you can't.
If you think the U.S. housing market is bonkers, you haven't been paying attention to our neighbors up north. Not only is the Canadian housing market more expensive than the U.S. housing market, but average wages in Canada are also lower.
If the world suddenly finds out the U.S. housing market is one of the cheapest in the world, I fear our children will be priced out of the U.S. housing market forever. If enough renters get priced out, there might just be a revolution!
As a result, if you are a parent, you should consider buying your primary residence as soon as you can afford to do so. Then you should consider buying a rental property for each child. You can pay it off by the time they graduate college and they will be set for life.
The Canadian Housing Market vs. The U.S. Housing Market
The easiest way to show you how much more expensive the Canadian housing market is compared to the U.S. housing market is by showing you a visual of home prices versus disposable income.
As you can see from the chart below, U.S. disposable income is roughly 10% higher than Canadian disposable income. However, Canadian home prices are roughly 75% more expensive! Clearly, Canada has a housing affordability problem as median income levels are lower than U.S. median income levels.
From the chart above, the U.S. housing market looks perfectly normal. It is not in a bubble. As disposable income rises, so do home prices. One could argue the data shows the U.S. housing market may actually be about 10% underpriced.
However, the Canadian housing market has clearly decoupled from fundamentals. I would not be a buyer of Canadian property today. However, that's what a lot of people have said since 2000 and consequently missed out big time.
If the choice is between buying a comparable U.S. property or Canadian property, I would buy the U.S. property all day long. The U.S. has better weather, better job opportunities, and more entrepreneurial opportunities.
Personally, ~35% of my net worth is allocated towards mostly San Francisco and Honolulu real estate. Although I've been actively diversifying into heartland real estate since 2016. Today, private eREITs, public REITs, and real estate-related stocks make up about 10% of my net worth.
My current contemplation is how much more of my net worth should I allocate to real estate given what I'm about to share.
If The U.S. Housing Market Became As Expensive As The Canadian Housing Market
The median home price in America is around $420,000 in 2024.
If the U.S. housing market got as expensive as Canada's housing market, the median home price would be closer to $656,000, with a range of between $612,000 – $700,000.
And if the U.S. median home price was to rocket higher by 75%, the prices in the more expensive coastal city real estate markets would likely increase by double-digit percentages as well.
Perhaps not by 75%, but increases by an additional 30% would not be out of the question.
The problem with Americans is that we don't know how good we got it here in America. Our real estate is relatively cheap and our jobs are plentiful. We end up spending a lot of money on cars and other goods which almost always depreciate in value.
What we should be doing is buying as much real estate as we can afford and minimizing our expenditure on things such as cars. I've developed my House-To-Car Ratio to help people achieve financial freedom quicker.
The Most Affordable Countries In The World
Let's say you have read my post on why the U.S. property market is so cheap and still don't believe me. Perhaps you don't realize how good you have it because you've never traveled or lived abroad before. Not to worry.
Let's take a look at another affordability chart by Numbeo, the largest cost of living database site. As you can see from the chart below, the United States is the second most affordable country in the world. While Canada is the 17th.
What I like about this chart is that it takes into consideration income, gross rental yield, price-to-rent, and mortgage as a percentage of income.
Canadians spending 49.62% of their income on a mortgage seems to be unaffordable. Meanwhile, spending 7.24X your income on the median price of a home seems too expensive.
In other words, the typical Canadian homebuyer comes nowhere close to following my 30/30/3 home buying rule.
Yet, the Canadian housing market has been booming ever since the early 2000s. Even the 2008-2009 Global Financial Crisis didn't do much to hurt the Canadian housing market.
Why Is The Canadian Housing Market Strong?
I have often wondered what makes the Canadian housing market so special. With such long cold winters and a lack of companies paying high salaries, you would think the Canadian housing market would actually be cheaper than the U.S. housing market.
When was the last time you heard about Americans buying up Canadian real estate? I don't know many Americans who are buying summer homes or retiring up north.
On the flip side, Canadians are consistently the #1 largest foreign buyer of United States real estate according to the National Association of Realtors. Canadians and many other foreigners know how cheap U.S. real estate is. Unfortunately, many Americans are not similarly aware.
If you believe the world is getting smaller thanks to technology, then it is only logical to buy real estate in the cheapest countries with the most stable governments and strongest economies. Clearly, the United States is a top choice with the U.S. dollar serving as an international reserve currency.
Top 5 Foreign Buyers Of U.S. Real Estate From April 2020 – May 2021
- Canada (8% of foreign buyers, $4.2 B)
- Mexico (7% of foreign buyers, $2.9 B)
- China (6% of foreign buyers, $4.5 B)
- India (4% of foreign buyers, $3.1 B)
- United Kingdom (4% of foreign buyers, $2.3 B)
Foreign real estate investors are coming with billions to buy U.S. real estate now that COVID is largely over. I believe there is over $200 billion in pent-up foreign demand that will be unleashed in 2023, 2024 and beyond.
Here are the main reasons why the Canadian housing market is so strong.
1) High Demand For Single Family Homes, But Not Enough Built
Apparently, between 2011-2020, Canadian builders built more apartments and not enough detached homes. However, nearly 60% of home sales in 2020 in 18 communities in and around Toronto, Montreal, Vancouver and Ottawa were for single-family detached houses.
During the pandemic, demand for detached single-family homes skyrocketed, which helped drive prices up by double-digits year over year. Canadian home builders need to build more detached homes, especially as institutional investors are buying more homes.
2) Running Out Of Land
Canada is roughly 3.9 million square miles large, 0.18 million square miles larger than the United States. However, most Canadians are clustered in a handful of major cities not far from the U.S. border. Most of the jobs are in Montreal, Toronto, and Vancouver. Then there are cities such as Brantford, Ottawa, Kelowna, Quebec City, Calgary, Saskatoon, Abbotsford, Halifax, and Victoria where job growth is considered promising.
With the United States below, the Pacific Ocean to the west, the Atlantic Ocean to the east, and mountains to the north, Canada doesn't have as much livable land as one might imagine.
However, one must continue to wonder why the best job markets in Canada are all so close to the United States? There has to be some type of economic pull from America. If so, it would be more logical for more Canadians to try and get jobs in America, which tends to pay higher wages.
Related: The Best Life Hack For Americans: Take Advantage Of Canada
3) Relaxed Foreign Buying Rules
Canada is relatively well-known for having an open-door policy for immigration. Therefore, it is no surprise Canada also has a relatively open-door policy for foreigners looking to buy property. Non-residents have the same ownership rights as residents.
Unfortunately, this open-door policy has really squeezed locals. With more Americans looking to immigrate to Canada to see on healthcare and college tuition costs, it's natural that demand for homes will increase.
Liberal Party MP Adam Vaughan, publicly acknowledged Canada has become “a very safe market for foreign investment.”
But, Vaughan added, it is “not a great market for Canadians looking for choices around housing.”
Then he went on TV Ontario with host Steve Paikin and said that attracting foreign capital is the key to building more housing supply in Canada.
“We have a very good system of foreign investment creating a lot of new housing in Canada as we add immigrants and grow the population,” said Vaughan, a former Toronto city councillor who is now parliamentary secretary for families, children, social development and housing.
I'm not sure Vaughan makes much sense. Foreign investors are competing with locals to buy homes. Foreign investors can only help build more housing supply if they are funding builders or building homes themselves.
At least in April 2017, the Government of Ontario introduced the Non-Resident Speculation Tax (NRST), a 15% tax on the purchase of residential property.
A part of me has to believe Canadian politicians are getting paid off in some way by the foreign buyer.
Canada Bans Foreign Home Buyers!
In 2022, Prime Minister Justin Trudeau finally announced a two-year ban on foreign home buyers to help cool down the housing market! This is a surprise. The unintended consequences may be that foreign home buyers focus their home buying capital more squarely on U.S. property.
The pandemic has essentially throttled foreign real estate investors for two years. As a result, U.S. property looks even more likely to continue doing well.
4) Easier To Launder Money
Perhaps one of the reasons why the Canadian housing market is so strong is because there is a lot of money laundering going on.
Global Financial Integrity, a Washington D.C.-based anti-corruption organization believes a significant amount of illicit funds is laundered in Canadian real estate.
From 2015 to 2020, the news media ran stories about US$626.3 million of real estate being bought with laundered cash. Over 88% of it was on residential real estate. What's more interesting was that the $626.3 million was over only 35 cases. Think about how many more undiscovered cases are out there.
The study revealed 48.6% of cases involved Canadian sourced funds being laundered. Since Canada has an open-door policy for foreigners buying real estate, Canada has become an excellent place to launder funds as well.
The largest international source was China, representing 22.9% of cases — about half as many as Canadian sourced laundering. The US was the third with 11.4%, half the size of China.
You have to wonder, if Chinese households can only withdraw $50,000 out of the country every year, how do mainland Chinese buyers afford to buy $2+ million dollar homes in Canada? You only have so many relatives and friends to pull resources together.
The government knows what's up, but is choosing to look away.
The majority of money laundering is done through company structures, used in 51.4% of the cases. Third-party processing (45.7% of cases), and mortgage schemes (34.3%) round out the top three. The fourth is private lending (17.1%). Private mortgages are also not subject to anti-money laundering rules.
5) Stronger Bank Of Mom And Dad Culture
As Americans, we strongly value independence. Whereas Canadians seem to emphasize interdependence. Subsidized healthcare and subsidized college tuition are great examples of a more communal Canadian culture where nobody gets left behind.
Contrast the “we're all in this together” mantra of Canadians with the “every man for himself” mentality of many Americans.
Our government seems OK with its denizens going bankrupt due to egregious medical expenses. U.S. universities continue to charge exorbitant tuition prices without any accountability. In fact, maximum profitability is encouraged by the government via its massive federal loan program. Once students graduate, all they really get are a “good luck” and a “goodbye.”
However, with Joe Biden as president, we are slowly moving towards the Canadian ideology. Among real estate circles, The Bank of Mom & Dad is also growing in generosity. It is no longer uncommon for an adult child's parents to come up with the down payment or buy them a home outright.
Instead of competing against another buyer with one balance sheet, we are slowly having to compete with a buyer with two or three balance sheets (individual + mom and dad or a couple + mom and dad). As a result, this growing phenomenon will likely continue to put upward pressure on U.S. real estate prices.
The U.S Housing Market Could Revalue Higher
Instead of the Canadian housing market correcting downward to the United States housing market level, I see a greater chance of the United States housing market rises to the Canadian housing market's level.
Let's put the potential at 60% within the next 10 years and 75% within the next 20 years. I firmly believe foreigns will come rushing back to U.S. real estate in 2024 and beyond.
With President Biden in charge, we have a relatively more open-door policy for foreign real estate investors. With every new home that is built, we are also slowly running out of land. Further, I suspect foreign investors will rush back to the United States once the pandemic subsides.
Dollar volume for U.S. real estate by foreign buyers peaked in 2017 at $153 billion. It has been on a steady decline partly because China clamped down on capital outflows. Chinese citizens can technically only buy $50,000 worth of foreign assets per year. However, due to various controls, the actual amount is less.
There is pent-up demand for U.S. real estate by foreign investors. If the United States does indeed reach herd immunity sometime in 2022, I expect foreign buying volume to reach over $100 billion again. That's a 50% increase from 2020 levels.
If such a scenario occurs, foreigners will squeeze out American citizens from the real estate market just as foreigners are squeezing out Canadian citizens from the real estate market.
Realize How Cheap U.S. Real Estate Is
As I conclude this post, I hope everyone realizes now how cheap U.S. real estate really is. Although prices have been surging higher recently, from a global, international perspective, prices are still very affordable. Also, with mortgage rates higher and the global economy slowing, the frenzy for real estate has faded.
Long term, if you believe the world will continue to get smaller due to technology and stronger international relations, then staying long U.S. real estate is a wise move. I'm mainly a buyer of rental properties, REITs, and real estate crowdfunding in the heartland.
I understand it's hard to buy real estate after significant double-digit gains in only one year. Prices will inevitably slow. However, if the U.S. housing markets ever starts resembling the Canadian housing market, today's prices will seem like a bargain.
When it comes to valuing real estate, do not forget the income side of the equation. The labor market is strong, which is causing wage inflation. More people are quitting their jobs than ever before.
By the time the U.S. Census Bureau comes out with the 2021 median household income, real estate prices will likely be even higher.
Real Estate Suggestion
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Thanks for these posts comparing US housing values to other countries. I have long been frustrated by the narrative that current housing is less affordable than decades past… a position that is clearly false once you adjust for home sizes and interest rates. However, I didn’t realize just how much more expensive most other developed countries are, aside from the obvious cities that are always mentioned.
After looking a bit into the demographics of these various nations, I wonder how much age distribution will play in home values in the next 10-20 years. The US has a relatively low age dependency ratio, and in particular old age dependency. However, that has been rising recently and will continue rapidly over the next 10-15 years.
The chart you posted in another post shows Italy and Germany lagging in appreciation for the last couple decades. However, they’re still relatively expensive. Did they experience high appreciation while their population was quicly aging decades ago? Once the aging began to plateau, perhaps that’s when housing began to struggle there.
Bringing this to the US, will we see rapid appreciation for the next decade or so (esp in places like FL, AZ, SC, GA, TX) as the Baby Boomers continue to retire? Then once that begins to level off a bit, might we see housing struggle for awhile similar to Italy and Germany? This seems ripe for significant wealth building by Gen X and Millennials, possibly compounded by inheriting the correlated home equity wealth from their parents as the Baby Boomers hit their 80s and 90s.
A couple links showing some of the data I was lookin at:
https://www.indexmundi.com/facts/indicators/SP.POP.DPND.OL/compare?country=de#country=ca:cn:fr:de:it:es:gb:us
https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1144.pdf (page 6)
https://www.financialsamurai.com/why-is-united-states-property-so-cheap/#:~:text=Once%20again%2C%20United%20States%20real%20estate%20is%20cheap,whack%2C%20a%20tremendous%20amount%20of%20social%20inequality%20occurs.
Wow, I had no idea that Canadian real estate is so expensive. I’ve always thought the real estate market has been in a ‘bubble’ for a while but when you do an apples-to-apples comparison to another country, American real estate does definitely seem a lot cheaper.
Thanks for the insight!
Sam, my wife and I moved to SF in Jan. 2020, as I got promoted to partner at a Big 4 firm and was brought in to grow the SF market. After a few weird/quiet pandemic months in the city, we migrated to Walnut Creek.
At my job in a Big 4 audit firm, I earn all cash comp. Together we make about $500k. My pay will increase over time, as such, our household income could get to a $800k-$1m/year if I perform well in next 5-7 years.
With that said,…. Everywhere I look around me, people are rich beyond my wildest dreams and making millions off equity grants. I feel poor by comparison. Long story short, we are starting to come to the conclusion that we will never be able to afford the East Bay house we want, and maybe we should move elsewhere. The thought is I can aero-commute into SF for client and team meetings as needed.
*My big question is* Where is someplace near SF with a good lifestyle, reasonable COL, and <2 hour flight away. A few that come to mind are the Vegas suburbs, Bend Oregon, someplace near Seattle, or possibly Arizona. I would imagine you've pondered this topic once or twice. Ideally, I'd love to lower our taxes, increase our savings rate, and buy a family-ready home for <$1.5m. Would love for your advice on this topic.
How about Nevada? No state income taxes.
You’re right, plenty of people are making millions from equity grants.
But with $500K/year, you should be able to stretch to $2.5 million with a decent down payment no? And with higher income over time, you can afford more.
Lots of great homes for $2.5 – $3 million in the East Bay!
Why not El dorado hills/Folsom/Davis/Sacramento area
I think taxation is the main contributor to higher price real estate in Canada.
Primary residence tax deduction:
1. In U.S. you only get a deduction on mortgage interest + 250K per person taxable gain deduction
2. In Canada, interest is not deductible. But we get full deduction on capital gain. So people go out and buy the most expensive house they can afford and use it as a retirement savings or inheritance. e.g. If a house appreciated by $2M, the entire gain is not taxed at disposal or death.
Taxation on permanent residents and citizens:
1. US folks get taxed on worldwide income. I had a boss who worked in U.S. for 10 years on work visa. He did not want to become American because you get taxed on worldwide income no matter what.
2. Canadians can declare non-residency and stop filing tax return. So it is easier to launder money and evade foreign income tax. My boss declared non-residency while working in U.S. so he did not file CRA return and did not pay any Canadian tax for these years. So I think wealthy Canadians might have higher than reported incomes.
Then there are other factors you mentioned in your articles: more lenient immigration policies, government encourages foreign ownership to boost GDP, government receives higher property taxes when real estate appreciates quickly.
Great points on better taxation policies.
“ If a house appreciated by $2M, the entire gain is not taxed at disposal or death.”
Pretty sweet!
We might get the SALT cap deduction repealed.
Wow, this article was truly sobering Sam. With everyone stunned at US home price appreciation not only since the pandemic began but since 2012, and prices at all time highs, reading your argument about how US real estate is a bargain really me by surprise.
You make excellent points on the relative prices and open door policies in Canada, and I hope the US implements stricter taxes like the Vancouver excise tax to enable more moderate price appreciation amid a low supply of homes for sale.
Even as prices may be a bargain compared to many countries, it’s still out of reach for those even making six-figures. Hoping for that market to “cycle” if it ever does.
I’m a 43 year old Canadian with a $1M+ 1600 sq foot home (paid for). Not even located in a major city center (not TO, Van, Mon). Feeling slightly underleveraged. Increasingly frustrated with Cdn real estate. Don’t really care that my principal residence is highly valued. Gotta live somewhere. Perhaps somewhat bitter that I didn’t buy a second property sooner. Considered a cottage on a Great Lake last year. It almost doubled from 450k to 800k (Fella sold it 10 months later). Can’t geoarbitrage as it’s now expensive everywhere in Canada. Would love to get into crowd funding but it’s generally not available. Is it worth a hard brick and mortar buy in some US state? Florida? Too much of a pain? I do think/agree that the US may see material increases.
Hey Sam,
There is a city Richmond next to SF. Richmond known to have high crimes but cheapest home and land compare to Oakland. Why doesn’t any developer invest in Richmond. Please comment.
I think you answered your own question
High crime. Long commute. Less desirable area to raise a family. Building restrictions.
I moved from NY/NJ metro area about 2.5 years ago to Toronto with my spouse and 2 young children. We definitely earn less money in Canada and pay through the nose for housing, but we are lucky enough to have had enough savings to buy a home in Toronto last year. I would never have been able to save enough money for a down-payment if I grew up in Canada and never worked in the US. The home prices here are simply out of reach for local Canadians. That said, I do think our lives, as a family, have improved since we moved here. Overall, work is less intense, healthcare is reliable and public school education is also SOOO much better here than the US (even NJ, where we came from). Importantly, Toronto is truly diverse and relatively liberal; it is truly a more diverse and tolerant place. As such, despite the lower income, I am not certain that we would ever want to return to the US. That said, reading your article makes me want to consider investing in property in the US anyhow!
Seems like a good move, making money in U.S. and then taking it easier in Canada.
I’m assuming the temperature difference is not that different either for you guys.
But man, I love NYC!
If you’re OK with making less money, good on yah!
I had done the opposite. Moved from Toronto back to the US ( after spending almost 10 years there).
What my family found: better education in high school and college ( my children were able to get into medical and law schools on their first attempts), not free but much better medicine, relatively cheap housing, better paid jobs, less taxes in Florida.
“Affordability”, the measure you highlight is based on income in that country. But on an absolute basis, say cost per square foot in a similar urban center, there are many places in the world less costly than the USA. I’m just thinking that is another factor in foreign investment flow related to real estate.
Affordability based on income is absolutely an appropriate metric to evaluate.
But if you are retiring, you can move anywhere to geo arbitrage. But I don’t know that many people looking to retire to Canada due to the weather.
But, it’s happening for health insurance purposes, which is kind of a sad statement to our HC system.
Possibly – but there is a reason PSF prices are higher in SF or NYC than Raleigh or Austin which are in turn higher than Tulsa etc and a lot of it has to do with incomes and wealth in those areas are much higher (or Toronto/Vancouver vs small town in Canada). You invest largely for a cap rate, not a PSF unless you worry about a lot of supply… I think one of the reasons US housing prices has not gone crazy till the last year was that builders in prior cycles always met (and exceeded) demand when demand heated up. For a variety of reasons, that hasn’t happened this time, and now with land, labor and material cost up significantly, is still unlikely unless prices continue to increase from here.
Great article Sam. What are top 5 REITs you own?
One thing to keep in mind is that the difference is prices between what is considered a desirable area or even city in the US is much greater. Canada doesn’t have Clevelands or Detroits in terms of property prices. There are no truly cheap urban areas in Canada. So when you look at averages the US appears cheaper. Even within cities the disparity is much greater in the US. Look at a city like Miami for example. Sure, we have cheaper rural areas, but most Canadians live in urban or suburban areas. Also keep in mind the cost of construction is generally higher in Canada. In terms of materials our companies have less buying power based on volume. We also have higher labour costs than most of the US. In addition to that, many cities have archaic zoning regulations and expensive permits.
It’s mostly dirty money. Major Canadian banks and government are complicit. If an international buyer can put 30% down they don’t have to disclose the source of their funds or how they will make the payments. It’s also a cheap hold. Have you checked into the difference in holding costs between Canada and the US? More specifically, the cost of property tax. Not sure how this compares to US policy. Low interest rates are a contributing factor.
Most of the problem is blamed on Illegal money flows from China, but immigration policy since 2015 has opened the door for more of this from Mexico and Iran. Canada went all in on housing and behaved in an increasingly risky fashion because GDP was reduced after oil prices fell and its part of the liberal party enhanced immigration platform. The environmental agenda of the federal government impacted the oil industry at the same time as global price reductions. These factors reduced many high paying jobs and limited safe investment opportunities outside of housing.
This has really only been a major problem for Vancouver and Toronto, but now local communities all across Canadian cities and towns are starting to enjoy increased property value and the ruining of their social fabric.
They are making this an election issue with the opposition threatening to cancel foreign home ownership sales for 2 years if elected- I’m doubtful this would actually happen. China is slowing down anyway, so the heat will probably get turned down in Canada. Also Canadian homeowners may not react favourably to this policy because they don’t want to lose equity.
To answer you question about why international money would maybe prefer Canada to the US I can only speculate. If I had to guess it’s probably because of healthcare, public schools, subsidized university costs, smaller population/ safer, and a desire to keep the US government out of your financial affairs. I’m also not sure how easy it is to buy a visa to enter the US compared to Canada. Remember Canada is still a developing nation compared to the USA, so the possibility of growth might be higher.
It’s interesting though right? On the one hand, foreign money helps Canadians who own homes richer. That’s the majority.
On the other hand, it annoys future generations who are growing in power.
Unless politicians make a lot more money, it’s hard for them not to succumb to the temptation of bribes. But the irony is, the more corrupt they are, the wealthier homeowners get!
So I’m betting the good times continue b/c more and more Canadians are vested in further homes price appreciation.
China major real estate buyer … and not only hard real estate, but also small privately held family business that have been around for 40/50/ even 75 years. Consider:
1. In Greater Vancouver Area New Housing Developments:
Vancouver City: emphasis on condos – with square footage of 500 sq.ft or less going for $1M in downtown Vancouver (& significantly higher as the sq. footage increases). Pre-construction option to buy largely promoted in foreign countries (China being major market). Many of these condos are empty – purchased abroad as holding property (and safe have if need be).
Vancouver Residential: formerly single family residential areas being rezoned for mixture of condos (6 story) and townhouses, creation of “village” style communities – you’re looking at 1.5M. Again primary market is China – even the billboards make no bones about it as Asian faces dominate the ads.
Vancouver crème de la crème – take Shaughnessy, Point Grey, Marine Drive etc. … oh heck, one day a substantial estate – next day rebuild (house bigger of course) – which if spec, will be on the market north of 20M if at all, but more than likely purchased prior to rebuild. Who lives here? Who knows? You seldom see them.
I could go on and on … but here is a real life example. Bank of Mom and Dad helped finance townhouse in a “suburb” (one hour drive out of Vancouver) for one of their offspring for $500,000 in November of 2020. That townhouse is now valued at close to $800,000.
Yeah, Canada is running out of land, that is why prices are so high.
I guess no one knows why prices are so high there.
There is money laundering, Chinese money, marijuana cultivation, immigration , no capital gains and many other factors involved.
But the main reason I think is interest rates artificially set below inflation rates by central banks. Home prices will continue to go up as long as this condition exists.
Then all bets are off.
Add to that a lot of regulations preventing or limit homes from being built, and it compounds the issue. A lot of those same reasons are now present in the US too, especially low interest rates and you do get a $250k/$500k (single/married) capital gain tax exemption in US as well although not above that. I also think real estate is set to do well again the next 5-10 years in the US. The Federal Reserve cannot raise interest rates meaningfully – our Fed Gov can’t afford the interest payments with rates at 5%, so they will keep it low and print like there is no tomorrow.
I agree with Sam in general that housing is cheaper in US than everywhere else in the developed world.
Tokyo is hot
Supply down
Prices up
https://japanpropertycentral.com/tokyo-apartment-inventory-continues-to-decline-while-prices-rise/
Hi Sam,
You mentioned that Canada has an open door policy. But isn’t there a 20%/15% foreign buyers tax in metro areas such as Vancouver and Toronto?
I remember searching for properties in Vancouver in early 2020 and encountered this issue.
I heard Calgary doesn’t have such a tax.
Yeah …but they always find a way around it.
I feel bad for Canadian renters. Holy crap is their housing market on fire!
But for those Canadians who made fun of homebuyers over the past 10 years, I don’t feel sorry for them. Those guys are literally losers.
No wonder why the average Canadian is also much wealthier than the average American!
Canada has a primary residence tax exemption. No capital gains on your home.
We are in Spain and Ireland territory.
Here are some notes I made on a good pod on the CDN market if you’re interested.
Not sure how to link to it robustly but on the the Preet Banerjee podcast Mostly Money, guest Ben Rabidoux throws out some numbers behind the hot market.
A couple of interesting points that reinforce what’s been discussed here:
Residential investment (new housing construction, renovations, ownership transfer costs)= 9.5% of GDP (previous peaks were 7%)
Peak in US before ‘08 bubble just over 6%
Residential investment has been 1/2 of the economic growth since 2018.
Canada spends 3x more on broker costs than all CDN businesses spend on R&D.
Residential investment is 40% of Canadian Gross fixed capital formation. Only Greece, Ireland and Spain in the 00’s got higher.
Under construction right now in Canada 100k purpose built rentals, less than 60k single family homes, complete mismatch to demand.
Toronto : 7-8 realtors per house for sale
Things Gov’t (any party) might do while not squashing the economic engine of housing which no one will touch in an election year.
National Beneficial Ownership Registry
Curb foreign speculation ( probably doesn’t cool the market much, but politically feasible)
Local gov’t :Curb short term rentals some more
Crack down on money laundering and criminal sources of cash being infused
Eliminate the blind bidding going on in most places.
Lots of good stuff. Recommended.
The whole thing is good but from 40:48 on is particularly interesting.
Nice post, and very enlightening! I agree I think real estate in other well developed countries is at the level of our most expensive cities in the US (New York, LA, San Francisco), while the rest of the US is relatively inexpensive compared to the world.
2 points gave me a chuckle though, Italy being expensive, aren’t they giving away homes for $1? Also Canada is short of land??? I think of Canada as one big forest/tundra with awesome cities on the coasts.. heh… :)
Great article Sam!!! I agree with you on how relatively cheap is the US housing market compared to other developed countries. I am also long US housing market. Do you have any thoughts about Japan property market? Japan is the only country in Asia where foreigner can own the land and get the same treatment in term of buying and ownership as the Japanese ( no extra tax on foreign buyer in Japan, most of other countries in Asia that i know of only allow lease hold or where foreigner can only buy flat but not land). Japan property price is also relatively cheap compared to other developed countries. Any thoughts would be appreciated. Thanks Sam
Japan has a demographics issue – not enough births and an aging population.
With not a lot of land, and already high GDP per capita, the country is surrounded by lower cost, competitive forces that are taking away market share and profits. Unless Japan can somehow reinvent itself, it is an “ex-growth,” service-based economy,
Investing in a assisted living facility in Japan would probably be a good idea.
The United States is going through something similar, but we have a very innovative culture that is highly focused on making as much money as possible.
Oh wow this is eye opening for me. That side by side comparison chart of home prices in the US vs Canada is way more extreme than I would have thought. I also didn’t realize there’s such a high prevalence of corruption and money laundering going on. Fascinating.
I know a couple of Canadians and they do all say that wages are so much better in the US, which is why they came here to work. They have tentative plans to move back when they have kids. But they may change their minds because they are drawn to the home prices here vs back in Canada and want to set down roots.
Great article, always fun to see comparisons like this between Canada and the US. As a Canadian living in the US, I feel compelled to offer some reaction.
First, I was amused at your choice of cities where the the most jobs are. Abbotsford (pop. 149k), Kelowna (pop. 132k) and Brantford (pop. 102k) would not have been on my list. Montreal (pop. 3.5M and Edmonton (pop. 1.1M) would have been.
Second, though it’s correct, strictly from a supply and demand perspective, to conclude that not enough single detached homes are being built, it’s worth noting that most Canadian cities have concluded that US-style growth (i.e. suburban sprawl) is not only unfeasible due to geographic restrictions but also irresponsible. Sprawl is more costly for a municipality to maintain, and leads to lower quality of life overall due to high vehicular traffic, and non-walkable neighborhoods. For these reasons infill development and high density housing are prioritized over single-detached. The supply and demand figures demonstrate that Canada is going through a painful cultural transition as most people of home buying age still want to buy that detached home with a yard for the dogs and kids to run around in (because that’s what we grew up with), but are being gradually priced out of that ideal more and more. I think that over time, though there will always be high prices for single family homes due to limited supply, we’ll start to see the average price of all homes start to level off as more and more people accommodate to apartment living.
Thanks. What do you think of my thesis and why do you think Canadian home prices are so much higher?
Also, what brings you to the U.S. to work and is the pay better? The key reason my Canadian friends come here is due to the much higher wages. Then they go back to Canada once they’ve made enough.
See: https://www.financialsamurai.com/the-best-life-hack-for-americans-taking-advantage-of-canada/
I chuckled as well reading the list of cities – Montreal (2nd largest city) is always forgotten, yet Quebec city made the list.
Housing remained relatively affordable in Montreal until more recently and your charts tell the story. There was a serious lack of urban planning: over construction of small condos vs increasing demand for single family housing. Combined with a decade of low interest rates and strong economic growth – SFH prices are exploding.
Compared to the US, wages are lower here and taxes quite high, however once you start having children there are several expenses that are way cheaper here, namely childcare (in Quebec at least), education and healthcare.
Does Montreal and McGill University really count? Come on now!
I highlighted those smaller cities as the supposed top cities for job growth.
Any interest in buying U.S. property?
The pandemic has made single-family detached housing with a large yard skyrocket. And future potential pandemics.. and covid varients will only increase prices for said homes. As much as “central planners” love the idea of outlawing surburban sprawl… demand will continue to increase for exactly what is in low supply. People don’t want that just because “they grew up that way”. I don’t pine for the days of rotary phones and no internet cause i grew up that way. Yards and single family homes if anything will be the new “wealthy” aspirational goal for many… because it’s awesome, safer during pandemics, and the only privacy many people will have to cling to in our government surveillance society of the future.
Good article! Surprised to learn the large differences in income-to-housing-price ratios.
The strong social safety nets provided by the Canadian government certainly also plays a role in giving its citizens a license to spend more on housing.
It is kinda ironic isn’t it? The bigger the social safety net, perhaps the more expensive homes are, making it necessary for more people to rely on the government.
Perhaps everything is exactly as the government has planned to retain power and make some side money under the table. Hmmm.
Why Canada or the US allow china to buy property is a mystery. They are as close to an enemy power as there is.
Enemies? Probably more like competitors. If you start discriminating against other countries and other people, it becomes a slippery slope.
I have grown up in the US, but all of my relatives still live in Canada. What my relatives tell me is foreign buyers have bought up a enormous amount of the properties in Vancouver, Calgary and Toronto. What the foreign buyers also get with their property and investments is a Canadian passport. If you a wealthy family anywhere in the world that isn’t stable that passport is worth buying a couple of apartments and a house or 2. The Asian community particularly liked Vancouver for the existing large Asian population. Once Vancouver got to expensive some starting moving to Calgary and Toronto. I also totally see money laundering as another driver of the market.
Canada has also had a huge immigration boom over the last couple of decades. Recruiting some of the smartest and best educated people in the world. When many US companies were having trouble getting enough talent many of them set up offices in Canadian cities. Like you said almost all the major cities are less than 100 miles from the border. Vancouver to Seattle in normal times is a 3 hour drive.
The only reason I was somewhat surprised is Canada does not allow you to deduct the interest or property taxes off your federal income taxes. Most of my relatives can’t comprehend a 30 year note, and try aggressively to pay off their homes as quickly as possible. Many of them have 7 or 10 year notes.
The wave of foreign money from Asia is coming for west coast property. The waiver for money from Europe is coming for East Coast property.
And eventually, both ways will come crashing in on the heartland. It’s just a matter of time in my opinion.
“And eventually, both waves will come crashing in on the heartland. It’s just a matter of time in my opinion.”
I doubt this. The world is bifurcating even within countries. There is absolutely no reason for housing prices to increase in an area just because it is currently cheap relative to local incomes.
I live in Ottawa, Canada and there is a small town right across the border called Ogdensburg, NY. The place has been depopulating since the 1930s and you can buy 5-plexes for $150k and SFH for $30k. Most of the housing stock trades way below replacement cost and it has been that way for decades.
My view is that real estate in certain cities have effectively become globalized financial assets. Real estate in these cities are effectively becoming the new global reserve assets. Everyone knows that fiat currency is getting inflated globally with negative real interest rates. Everyone is searching for assets that can preserve value. Cities that have access to a large global population (immigrants, expats) effectively have their real estate become globally recognized stores of value. Having a large global pool of potential buyers mean you have a floor under prices, which makes real estate in those cities stable stores of value.
This dynamic will not apply to most heartland cities. Their housing stock will remain a consumer commodity. Without a large global pool of potential buyers, their housing markets will be far less stable and far less liquid.
Comparing real estate in Vancouver with real estate in Kansas is like comparing the government bonds of the US with the government bonds of Argentina. Despite both being government bonds, the buyer pool and price dynamics are totally different between the two. One is a global reserve asset and the other is a gamble.
I’m around 50 years old and own a 2 family home that I live in. I also have a small vacation home for personal use. I have some REITS in my Roth IRA and a little bit in a Fundrise account. IDK if at this stage I want to deal with buying another property to rent out and the headaches of tenants and repairs. I’m also in NY and property taxes are high. Feels like when my mortgage is paid off I’m just renting the house from the town.
I like to shift my portfolio more to real estate as I’m fully invested in equities. Would the easiest thing at this stage of my life be to pour more into a Fundrise account than buying an individual property? OR I reallocate more in my Roth to the REIT I own (VNQ)?
I completely understand where you are coming from! I sold my rental property in 2017 because I couldn’t stand dealing with five guys as tenants anymore. When they decided to spread out, I used it as an opportunity to simplify life and reinvest the proceeds in more passive investments.
See: https://www.financialsamurai.com/why-i-sold-my-rental-home/
I own VNQ and a bunch of other real estate ETFs and REITS. I just know from wanting them for a long time that they can sometimes be even more volatile than stocks when the stock market corrects.
Therefore, I’ve been steadily building up my private real estate syndication portfolio, and I think Fundrise is a great solution to gaining diversified real estate exposure in a much less volatile way. You may make less in an eREIT versus an individual deal. But the risk is also much lower.
At my age and situation. I am happy with single-digit investment returns. Everybody has their own risk tolerance.
Yes, during the meltdown in 2020 VNQ dropped quite a bit more and took longer to recovery than the market. As it started going up, I sold as I started to break even. That’s because I wasn’t sure if commerical properties would be the same with companies down sizes their offices. Its come back nicely and I still have some, but still hesistant. I do like it being in my roth since the difivdends are tax free.
I like fundrise, but its not as liquid as a REIT since you have to hold it for 5 years before you can sell without a fee if they let you. thanks
True. Although, I think it’s important to invest for the long term. It generally works out better. Not having easy liquidity has often saved me from selling during inopportune times.
Related: https://www.financialsamurai.com/the-need-for-liquidity-is-overrated-if-you-are-financially-competent/