Housing Costs

Locke Consulting Icon
December 15, 2023

During the past four years housing costs have more than doubled and are now starting to fall back towards more reasonable levels.  In February of 2022 the London & St. Thomas Real Estate Board reported a high average sale price of about $832,000.  That value has dropped back to around $593,000 in November of 2023 – an astounding drop of 29%.

One should be mindful however that the Canadian real estate market has been overpriced for many years, in 2013 the IMF estimated that the Canadian real estate market was overvalued by a staggering 60%.  Housing costs are not only reflected in the sale price of properties but also in the cost of rentals, which have also increased substantially.

Unlike house prices, rental prices are less likely to decrease because many landlords have been saddled with exorbitant mortgage costs.  Landlords, particularly smaller private landlords, often fall prey to Landlord and Tenant tribunals that allow non-paying tenants to remain in rental accommodations way past their expiry date.  The landlord has no choice but to provide rent free accommodations for months, if not years.

Mortgage rules in Canada allow lenders to continually renegotiate mortgage loans, changing interest rates over and over again.  A better model is one in which the rate set at the beginning of the funding is the rate that prevails throughout the full life of the mortgage. Unfortunately, the current rules have trapped many Canadians in a foreseeable debt bubble.

Housing costs are not counted as a part of the basket of goods used to determine inflationary levels, neither are transportation or food costs.  If these costs were considered the inflation rate would surely be well above 60%.  The biggest housing cost challenge facing Canadians today is not interest rates, or even rental costs, it is low income.  Very few Canadians have income levels that have kept pace with inflation, and excessive taxation is draining those precarious resources.