Canada and America are both great countries with several positive features. But when trying to decide where to live between the two, you might need to consider various factors. One of such factors is the affordability of housing. So, are houses in Canada more expensive than in the US?
Yes. The average price of homes in Canada is around USD550,723 compared to the US, where it’s USD308,220. But this doesn’t mean you won’t find houses in Canada that are cheaper than those in the US. Homes are costlier in Canada due to low-interest rates, demand, foreign investors, and immigration.
However, the United States has higher rents than Canada. Even in Canada’s most expensive cities, such as Toronto and Vancouver, the rent is still lower than the expensive areas in the US, such as New York City or Los Angeles. Here, we look at the prices of homes in Canada and why it’s that high.
Cost of Houses in Canada
Housing prices in Canada have always been high, but they soared to new heights in the past year. Even though the price of homes in Canada varies across provinces and cities, the average cost of a home in the country as of September 2021 is CAD686,650, equivalent to USD550,723. At this rate, the Canadian national average home price is far above that of the US which is USD308,220. This clearly shows that homes in Canada are costlier than those in America by over 40%.
The price of homes in Canada and the US used to be at the same level before. But that changed about a decade ago. The pandemic further widened the gap in housing prices between the two countries.
However, the high national average home price is largely due to the Greater Toronto Area and Greater Vancouver. These two areas are the most active housing markets in Canada and by far the most expensive. For example, a report forecasts that the average cost of homes in GTA will be CAD1,114,387 by October. If the two markets are excluded from the home prices, the national average will reduce by CAD146,000.
Factors Responsible for High National Home Price in Canada
Are you wondering why the average price of Canadian homes is higher than that of the US? There are reasons for the wide disparity in the prices. They include.
1. Higher Demand Compared to Supply for Homes
When trying to buy a house in Canada, you’ll find several instances of the house going for more than the asking price. This is because of the heavy demand for homes in the country. Several people want to buy a home in Canada, and there aren’t enough houses to sell. The high demand enables competition, which allows the seller to sell to the highest bidder, sometimes above the home’s current value.
The high demand for homes in the country is likely because Canada has a stronger homeownership culture than the US. The homeownership rate is 68.55% as of 2019, while the US has a rate of 65.4% in the third quarter of 2021. This shows that more Canadians are willing to own the place they live in compared to Americans.
2. Near-Zero Interest rates
There’s no better time for borrowers than when the interest rate is near zero. That has been the case in Canada for a while now. Its interest rate is quite low, far below that of the US. This means more people are willing to buy houses and can easily get approved for mortgages. The result is an increase in the buyers on the market even though there’s no corresponding increase in the number of homes available for sale,
3. Foreign Investors Interest
One of the most expensive real estate markets in the US is Hawaii. The rising cost of homes in the island state is due to various reasons, including foreign investors interested in its housing market. The same is true for Canada, especially in provinces such as Ontario and British Columbia.
Foreign investors have taken a shine to the Canadian real estate market in recent years, and in the process, they make it difficult for residents who want to buy homes in the country to afford them. These investors simply buy homes to rent them or sell them later for profit, thereby making the market competitive as they have enough capital to purchase properties and outbid residential homebuyers.
According to a report, investors have been behind one-fifth of home purchases since the pandemic started. Areas, where investors bought most properties, are Toronto and Hamilton. In these cities, investors account for 22.7% of home purchases in February 2021. With these results replicating themselves across the country, home prices continue to rise and even high earning residents are forced to rent as the price goes beyond their range.
Some cities have implemented foreigner tax to limit investors’ purchase of homes and prevent a further rise in home prices. A good example is Toronto. It’s the most expensive real estate market in the country, with the average home price being over CAD1,000,000 already. As a result, Toronto now has a foreigner tax of 15% on all home purchases by those who aren’t permanent residents or citizens of Canada.
Canada welcomes hundreds of thousands of immigrants every year. This is part of its effort to combat its population decline. But the influx of thousands of people into the country every year also means more demand for housing. So even though it’s hard to quantify how immigration affects housing prices, there’s no doubt that more people coming into the country increases demand.
The price of homes in Canada is higher than that of America by over 40%. This is due to various reasons. However, there are several areas with cheap housing in Canada, just as some places in the US have very expensive houses. Thus, it’s usually a matter of where you’re residing in either country.