7 Signs Canada is in a Historic Housing Bubble

I talk to young Canadians every day who feel like they’ve been gaslit. They did everything right—went to school, got the good job, saved the diligent deposit—only to watch the goalposts move so fast they disappeared over the horizon.

Is it a bubble? Or is this just the new, cruel reality? Real estate agents will tell you "it's always a good time to buy." Developers will tell you "land is scarce." But the numbers—the cold, hard, unfeeling numbers—tell a different story. They scream that we are living on borrowed time.

A "bubble" isn't a feeling. It’s a mathematical phenomenon where the price of an asset detaches from its fundamental value. In the stock market, you measure this with P/E ratios. In housing, we have our own metrics. And right now, every single dashboard warning light is flashing red.

1. The "Insanity Metric": Price-to-Income Ratio

Let’s start with the gold standard of affordability. For decades, a home in Canada cost about three to four times the average family's annual income. It was a social contract: work hard, and after a few years of saving, you can buy a roof over your head.

That contract has been shredded. In Vancouver and Toronto, homes now cost over 12 times the average income. Even nationally, we are hovering near 9x. We have surpassed New York. We have surpassed London. We aren't just expensive; we are statistically absurd.

To understand how broken this is: in 1980, it took the average young person 5 years to save a 20% down payment. Today, in our major cities, it takes 22 years. By the time you save the down payment, the house price has doubled again. This "velocity of money" detachment is the classic signature of a late-stage asset bubble.

2. The Negative Carry Trap (Rent vs. Buy)

In a rational market, the cost to own a home should be roughly comparable to the cost to rent it, plus a premium for the utility of ownership. If buying is vastly more expensive than renting, people rent, which drives down home prices.

Right now, that relationship is shattered. If you buy a condo in Toronto with 20% down, your monthly carrying costs (mortgage, tax, maintenance) are nearly double what it costs to rent that same unit. You are paying a 100% premium every month just for the privilege of owning an asset.

This gap is called "negative carry." Investors accept it only because they believe the asset will appreciate faster than they are losing money every month. They are bleeding cash flow to bet on capital appreciation. That isn't investing; that's gambling. When prices stop rising (as they have now), that negative carry becomes a dead weight, forcing investors to sell.

3. The Investor Takeover

Who is buying all these houses? It’s not families. It’s investors.

Bank of Canada data revealed that at the peak of the market in 2021, investors accounted for 30% of all home purchases. In some condo segments, that number hit 50-70%. We stopped building homes for people to live in and started building "safety deposit boxes in the sky" for capital to park in.

This creates a fragile market. A family living in a home will do anything to keep it. An investor losing $1,000/month on a condo that is depreciating in value will cut their losses and sell. The high percentage of investor ownership makes the Canadian market uniquely vulnerable to a "rush for the exits."

4. The Pre-Construction House of Cards

The epicenter of the bubble is the pre-construction condo market. For years, this was the "easy money" machine. You put down a deposit on a condo that wouldn't be built for 4 years. You waited. You sold the paper contract ("assignment sale") right before completion for a $200,000 profit.

The music has stopped.

Today, thousands of buyers are facing closing on units they bought in 2020/2021.

• The units are appraised for less than the purchase price (appraisal gap).
• Interest rates are double what they were budgeted for.
• They cannot qualify for mortgages.

We are seeing "distress sales" where buyers are walking away from $100,000 deposits just to avoid closing. This inventory is piling up, acting as an anchor on the entire market.

5. The Ghost of 1989

"It's different this time," they say. It's never different. We’ve been here before. The 1989 Toronto bubble followed the exact same trajectory: hyper-speculation, rising rates, and then a 40% crash that took 13 years to recover.

In 1989, people thought Toronto was "world class" and immune to gravity. They were wrong. The metrics today are actually worse than they were in 1989.

6. The Shadow Banking Explosion

When the big banks (TD, RBC, etc.) say "No," where do borrowers go? They go to the shadow market. Private lenders, Mortgage Investment Corps (MICs), and B-lenders.

This "shadow banking" sector has exploded in growth. These are loans with interest rates of 8%, 10%, or 12%, often given to borrowers who can barely afford payments at 3%. These loans are short-term (usually 1 year). As they come up for renewal, borrowers are finding they cannot pay. This is the subprime segment of the Canadian market, and the default rates here are already rising sharply.

7. The Psychology of "Always Up"

The final sign of a bubble isn't a number. It's a feeling. It's the dinner party conversation.

For 15 years, Canadians have been conditioned to believe that housing is a risk-free asset that only goes up. This belief led to reckless behavior:

• Parents leveraging their retirement to help kids buy.
• Homeowners using HELOCs to buy boats and cars, treating their home like an ATM.
• People buying second and third properties they couldn't afford.

When a belief system breaks, the correction is violent. We are watching that belief verify in real-time. The realization that "housing can go down" is the pin that pops the bubble.

What Comes Next?

We are likely entering a "lost decade" for Canadian real estate. Prices will likely stagnate or slowly decline in real terms for years as incomes play catch-up. The days of 20% year-over-year gains are gone.

For buyers, this is a time for extreme caution. Do not buy into the FOMO. The knife is falling; don't try to catch it. For sellers, the "top" is in the rear-view mirror. If you need to sell, price aggressively and get out.

The bubble is real. The math proves it. The only question now is how messy the cleanup will be.