February 2021. A Toronto couple places their twelfth offer on a house. They've lost eleven times already, each loss feeling more crushing than the last. Their agent tells them properties are getting twenty, sometimes thirty offers. The market is insane. Everyone knows it.

The house is listed at $899,000. Comparable sales suggest it's worth maybe $950,000. But they're done losing. They bid $1,050,000. No conditions. No inspection. They win.

Three years later, that same house sits on the market for $880,000 with no buyers. The couple owes $950,000 on their mortgage. They're underwater, paying for a mistake they made in less than five minutes.

This happened thousands of times across Canada between 2020 and 2022. The bidding war era wasn't just expensive. It created financial consequences that will follow buyers for decades.

Let's do the math that nobody did during the frenzy.

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The Bidding War Era By the Numbers

The pandemic housing market created conditions unlike anything Canadian real estate had seen. In 2020 and 2021, mortgage rates dropped to historic lows, with some promotional 5-year variable rates under 1%. Money was absurdly cheap. Homes suddenly felt affordable because monthly payments looked reasonable, even at inflated prices.

Bidding wars became standard across Ontario. Houses in Toronto sold anywhere from $100,000 to $700,000 over asking price. Smaller cities that had never experienced competitive markets saw the same thing. Barrie's typical detached house jumped nearly $100,000 over three months to $721,000 in February 2021. Milton and Oakville saw prices climb almost $200,000 in the same period.

The problem wasn't just that prices were high. It's that buyers had no information about what they were competing against.

Canada's blind bidding process meant buyers guessed. Your agent couldn't tell you what other offers looked like. Some agents advised clients to bid at least $200,000 over asking as a starting point, just to be competitive. Even if no other serious bid came in, even if the next highest offer was $175,000 lower, the buyer committed to that price. They'd never find out how much they won by.

One analysis of February 2021 listings in the Greater Toronto Area found that properties selling over 110% of asking price were common. Of 124 tracked listings with offer dates, only 61 closed. Those that did averaged 11.91% over asking. The rest didn't get satisfactory offers and either relisted or disappeared from the market.

Think about that. Half the properties holding bidding wars didn't sell. But the ones that did? Buyers paid massive premiums, often with no real competition justifying the price.

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What $100,000 Over Actually Costs

Here's where it gets ugly. Most buyers during the frenzy focused on one number: the monthly payment. At under-1% interest rates available during the pandemic, a $100,000 price difference only added about $350 to $400 per month. That felt manageable.

But mortgages don't last one year. They last 25 or 30 years. And interest rates don't stay under 1% forever.

Let's run the real numbers for someone who overpaid by $100,000 in early 2021, using illustrative scenarios with approximate numbers.

Scenario: $100,000 overpayment on a 25-year mortgage

At the 2021 promotional rates around 1.5%:

• Extra borrowed: $100,000
• Monthly payment increase: ~$400
• Total extra interest over 25 years: ~$19,000
• Total extra cost: $119,000

Not great, but maybe survivable if rates stayed low.

They didn't.

When that buyer renews their mortgage at rates in the range of 4.5% to 5.5% (similar to where fixed rates have recently been or could reach again):

• Same $100,000 extra principal
• Monthly payment increase for that portion: ~$550 to $650
• Total extra interest over remaining term at these higher rates: ~$70,000 to $90,000
• Total extra cost: ~$170,000 to $190,000

That $100,000 overbid now costs nearly double when you account for interest at these elevated rates.

And we haven't talked about opportunity cost yet.

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The Opportunity Cost Nobody Calculated

Every dollar you put into an overpriced house is a dollar you can't put somewhere else. This matters more than most people realize.

Take that $100,000 overpayment. Instead of putting it into extra house price, what if you'd invested it?

Conservative investment scenario:

• $100,000 invested in a balanced portfolio
• Average annual return: 6% (conservative estimate)
• Time horizon: 25 years
• Final value: ~$429,000

Moderate investment scenario:

• Same $100,000
• Average annual return: 7%
• Time horizon: 25 years
• Final value: ~$543,000

You didn't just lose $100,000. You lost the $300,000 to $400,000 that money would have grown into over 25 years.

Now add the interest costs from the mortgage. You're looking at total opportunity cost somewhere between $400,000 and $500,000 for that single $100,000 overbid.

Put differently: a household earning $100,000 per year just volunteered to work four to five extra years of their life to pay for a decision they made in five minutes during a bidding war.

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When Markets Correct

The opportunity cost is bad enough. But many buyers who overpaid face a more immediate problem: they owe more than their homes are worth.

Toronto single-family home prices peaked in early 2022 and have since dropped roughly 19% by late 2024. Vancouver's detached homes fell similarly from their peak. Condos in both cities are down even more, roughly 12% from their April 2022 highs.

Someone who bought a Toronto home for $1.4 million in early 2022 now owns a property worth around $1.13 million. If they put 10% down ($140,000) and borrowed $1.26 million, they currently owe more than the house is worth. They're underwater.

This creates real problems. You can't refinance when you're underwater. You can't access equity for emergencies. If life circumstances force you to sell, you have to bring money to closing to cover the gap between sale price and mortgage balance.

And if you overbid by $100,000 or $150,000 in that market? You're even deeper underwater. That overbid directly translates to how much further below water you sit.

The math is brutal. A buyer who paid $1.4 million for a house actually worth $1.25 million at the time is now $300,000 to $350,000 underwater when the market corrects 15% to 20%. The $150,000 overbid doubled their loss.

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The Regional Breakdown

Not every market experienced the same trajectory, and that matters for understanding who got hurt worst by overbidding.

Greater Toronto Area: The peak came in February 2022 with average prices around $1.33 million and composite benchmark prices around $1.28 million. By late 2025, the GTA benchmark had fallen to around $942,000, roughly 25% below the February 2022 peak, with prices back to levels first seen in early 2021. Buyers who purchased in early 2022 and overbid substantially are in the worst position. Someone who paid $1.5 million for a house worth $1.3 million at peak now owns something worth maybe $1.05 million.

Vancouver: Detached house prices peaked around $1.94 million in spring 2022. By autumn 2025, they'd dropped below that level again, breaking psychological support levels. The apartment market showed similar declines, with benchmark prices falling below autumn 2022 floors. Overbidding in Vancouver's market meant overpaying on already-astronomical prices, magnifying losses.

Hamilton-Burlington: Part of the Greater Toronto and Hamilton Area (GTHA), these markets saw similar patterns but from lower price points. Benchmark prices for single-family homes dropped to levels around mid-2021. Buyers who overbid in 2021-2022 are essentially back to 2020-2021 pricing while carrying mortgages based on 2021-2022 purchase prices.

Calgary and Edmonton: Interestingly, these markets experienced different patterns. Calgary actually saw price increases through 2023-2024 rather than declines. Buyers who overbid in Calgary may have recovered or even come out ahead, though this was the exception rather than the rule.

Ottawa and Montreal: Ottawa saw significant increases during the pandemic, with price growth around 17% in 2021. Montreal followed a similar trajectory but from a more affordable starting point. The correction in these markets has been present but less severe than Toronto or Vancouver.

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The Payment Shock Nobody Prepared For

Beyond the lost equity, overpaying created another problem: payment shock at renewal.

Remember those buyers who stretched in 2021 at promotional rates under 1.5%? They qualified based on the stress test, which required showing they could afford payments at around 5.25%. That seemed like plenty of buffer.

But the stress test assumed steady rates, not a correction plus rate increases. When these mortgages renew, rates could be in the 4% to 5% range or higher depending on market conditions. Combined with a house that's worth less, it creates a trap.

Let me illustrate with approximate numbers. Someone who bought for $900,000 in 2021 with 10% down borrowed $810,000 at around 1.5%. Their monthly payment was roughly $3,200.

At renewal with rates in the 4.5% to 5.5% range, that payment could jump to approximately $4,500 to $5,200. That's an extra $1,300 to $2,000 per month, or $15,600 to $24,000 per year.

If they overbid by $100,000, add another $550 to $650 to that monthly payment depending on the rate. Suddenly they're paying $5,100 to $5,800 per month for a house that's worth $720,000 to $750,000, while owing $810,000.

They can't refinance because they're underwater. They can't sell without bringing $60,000 to $90,000 to closing. They're stuck paying elevated mortgage costs on a depreciating asset.

This is why mortgage delinquency rates have been climbing, particularly in Ontario. Toronto's delinquency rate is at its highest level in over a decade. The stress test prevented mass defaults, but it didn't prevent financial pain.

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The Psychology of Overpaying

Why did so many buyers do this? Fear played a huge role.

When you've lost ten or twelve offers, desperation sets in. You start believing the narrative: prices will never come down, inventory will never increase, this is your last chance. Real estate agents, often unintentionally, reinforce this. "If you want to win, you need to go big."

The fear of missing out (FOMO) drove irrational decisions. Reports from 2020-2021 described properties selling in hours with 20, 30, sometimes 50+ offers. Most of them came in over asking with no conditions. No financing clause, no home inspection, nothing.

Buyers convinced themselves they were making sound decisions. The mental math went something like: "Sure, we're paying $150,000 over what we think it's worth, but prices are going up 15% to 20% per year. In two years, we'll have gained $300,000 in equity. The overbid doesn't matter."

Except prices didn't keep going up 20% per year. They went down 20%.

The other psychological factor: comparing to monthly rent. When agents showed buyers that a $1.3 million purchase at 1.5% interest meant monthly payments of $4,500, and their current rent was $2,800, the gap felt manageable. They weren't thinking about renewal rates or opportunity costs or what happens if the market corrects.

They were thinking: "I'm tired of renting. I need to get into the market. Everyone's buying. If I don't buy now, I never will."

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What Overbidding Means for Different Time Horizons

The impact of overpaying varies dramatically based on how long you plan to stay in the home.

5-year horizon: This is where overbidding hurts most. You don't have time to recover from a market correction. If you bought in 2021 and overbid by $100,000, you're selling in 2026 into a down market. You'll lose that $100,000 plus the market decline, plus all the interest you paid. Total loss could easily exceed $150,000 to $200,000.

10-year horizon: You have more time for recovery, but you're still paying interest on that overbid for a full decade. At 5% average rates over 10 years, that $100,000 overbid costs you about $50,000 in interest. And you've lost 10 years of investment growth on that capital. Total opportunity cost: probably $200,000 to $250,000.

20-year horizon: Long-term holders fare better because real estate historically appreciates over 20-year periods. But you've still paid interest on the overpayment for 20 years (roughly $70,000 to $80,000) and lost the investment growth that capital would have generated. The opportunity cost is still $300,000+, you just might not feel it as acutely because your home eventually appreciates enough to mask the loss.

25-30 year horizon: If you hold until the mortgage is paid off, the sting softens further. Real estate will likely have appreciated significantly over 30 years. But you still paid approximately $80,000 to $90,000 in extra interest and lost the $400,000+ in investment returns that capital would have generated in other assets. You'll never get those decades of compound growth back.

The bottom line: overpaying in a bidding war is expensive at every time horizon. The only question is how expensive.

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Not Every Market Tells the Same Story

It's worth noting that not everyone who overbid in 2020-2021 regrets it equally.

Buyers who purchased in markets that stayed relatively stable or continued appreciating came out okay. Someone who overbid by $50,000 in Calgary in 2021 likely broke even or gained equity as Calgary's market remained strong through 2023-2024.

Buyers who purchased in markets with severe corrections (Toronto, Vancouver, parts of the GTA) are in much worse shape. The combination of overbidding plus 15% to 25% market declines created catastrophic wealth destruction for some households.

And buyers who purchased investment properties or second homes have been hit even harder. Pre-construction condo sales have collapsed, with sales volume down 68% in Toronto and 62% in Vancouver. Investors who bought pre-construction in 2020-2021 are now facing completion at prices higher than current market value, with some trying to walk away from deposits rather than close.

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The Broader Economic Impact

Individual overbidding creates personal financial pain. But thousands of households doing it simultaneously creates economic problems.

When families are spending an extra $600 to $1,000 per month on mortgage payments for houses they overpaid for, that's money not going into the economy. It's not spent at restaurants, on vacations, on home renovations, on their kids' education. It's going to the bank as interest on overpriced debt.

Multiply that across tens of thousands of households in Toronto and Vancouver alone, and you're talking about billions of dollars per year in reduced consumer spending. This shows up in slower economic growth, reduced business revenues, and lower tax receipts for governments.

The mortgage stress also affects mobility. People who are underwater on their mortgages can't move for new job opportunities. They're stuck in place, even if a better job in another city would improve their finances. This reduces labor market efficiency and economic dynamism.

And the psychological impact matters. Households that feel poor because they're house-rich but cash-poor spend differently than households with healthy balance sheets. The "wealth effect" works in reverse. People who feel like they made a terrible financial decision become more conservative with all their spending.

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What This Means Moving Forward

The bidding war era taught several expensive lessons that current and future buyers should internalize.

Overbidding is almost never justified. Even in competitive markets, paying dramatically more than a property is worth creates long-term financial problems. The fear of missing out is real, but the cost of overpaying is worse than the pain of losing another bid.

Monthly payments are a trap. When buyers focus only on whether they can afford the monthly payment at current rates, they ignore renewal risk, opportunity costs, and market correction risk. The monthly payment is just one piece of affordability, and often the least important one.

Blind bidding creates information asymmetry that hurts buyers. Canada's blind bidding process meant buyers routinely paid far more than necessary because they had no information about competition. Some buyers paid $175,000 more than the next-highest bid simply because they couldn't see what others were offering.

Market timing matters enormously. Buyers who purchased in early 2020 before the frenzy saw their home values increase significantly. Buyers who purchased in late 2021 or early 2022 at the peak are underwater. A few months of timing created hundreds of thousands of dollars in wealth difference.

Leverage amplifies both gains and losses. Homebuyers are using enormous leverage, typically 10 to 20 times their down payment. A 10% market decline on a property bought with 10% down means you've lost 100% of your equity. Overbidding with high leverage meant even modest market corrections wiped out entire down payments.

For buyers currently in the market or considering purchases, the lesson is clear. The true cost of overpaying isn't just the extra purchase price. It's the compounded interest over decades, the lost investment returns on that capital, the stress of being underwater during corrections, and the reduced financial flexibility for years or decades.

Winning a bidding war by paying far more than a property is worth isn't winning. It's volunteering for decades of financial consequences that will compound long after the excitement of getting the house fades.

Understanding the real math behind overbidding might not make losing bids feel better in the moment. But it could save you hundreds of thousands of dollars and years of financial stress down the road.

Because in real estate, sometimes the best offer is the one you don't win.

If you're navigating today's market or planning a future purchase, taking time to understand the full financial picture, not just the monthly payment, is worth every minute. The market will always have another property. But you only have one financial future.