Investing Real Estate

Another Canada Housing Market Crash Is On The Way?

Will Canada housing market crash in 2021?

In this article, I am going to take a closer look at the recent moves of the Canada 5-Year Government Bond and the Housing Market in Canada. Why do we need to take a look at Canada’s 5-Year Government Bond while we are talking about the housing market in Canada? Because 5-Year Government Bond and 5-Year Fixed mortgage rates tend to move together.

Why Housing Market is Booming?

First of all, why the real estate market is sky-rocketing? Why do people start talking about the housing bubble in Canada? Why Bank of Canada issues warning about the overheated housing market? Aren’t we in the pandemic world with an over 9% unemployment rate? 

Well, the answer is simple. The historically lowest 5-Year Fixed Mortgage Rates play a role in this game. When the pandemic hit in March 2020, Discounted 5-year Mortgage Rates was 2.14% and it went all the way down to 1.39% in Feb 2021.

While homebuyers borrowed money from banks or credit unions with the lowest mortgage rates, the housing market has been skyrocketing according to the Canadian Real Estate Association.

housing market price. Will canada housing market crash 2021?
Source: Canadian Real Estate Association 

The Future of Mortgage Rates

To get a sense of what the future of the Housing Market will look like, we need to forecast the future mortgage rates. Let’s look at the recent moves of the 5-Year Government Bond Yields since there is a very strong correlation between mortgage rates and the Government of Canada bond yields.

5 Year Government of Canada benchmark bond yields. Canada housing market crash 2021
5 Year Government of Canada benchmark bond yields / Source: Bank of Canada

Can you see the steep hike from 0.5% in early 2021 to 1.0% in March 2021? This is something that we need to check out. This simply means that people think that inflation will rise too quickly.

RBC CEO Dave McKay also says inflationary pressures will force central banks to start raising interest rates as soon as next year.

Will Canada Housing Market Crash in 2021?

Finally, the most important question is that the Canadian housing market will go up or down? In my opinion, the Canadian housing market especially Vancouver and Toronto are highly vulnerable to a correction; however, I don’t think the housing market crash will happen recent future. Will Canada Housing Market Crash in 2021? Probably not.

Let’s say someone borrowed $500,000 at 2.0% 5-year Fixed rates in 2020 during the pandemic. When they need to renew their 5-year fixed mortgage in 2025, there is a good chance that they can’t find 2.0% 5-year Fixed rates anymore. It could be 3.0%, 4.0% or even 5.0%. If they decide to renew at 4.0%, that’s simply $500 more per month.

That’s when they might consider selling it off. The problem is that many people like them start to think of selling their property at that point. As you may know, when there is a surplus of housing available in a market, property owners have to lower their prices due to less demand in the market. It could be another housing market crash.


There is no simple answer for the future of the housing market; however, we always need to keep in mind that we live in weird times with historically Low Mortgage Rates.

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