Canadian real estate prices got a big boost from central bank stimulus, sparking a speculative frenzy. That frenzy is coming to an end fast, with more than half of major markets off peak. A pullback is expected after rapid price increases for real estate markets. What’s unexpected is the pace of the pullback, possibly one of the fastest declines Canada has ever seen. The country’s worst performing markets are now falling an average of thousands per day. However, markets are so frothy, this has only put a dent in the gains made.
About Today’s Data
After rate cuts began in March 2020, real estate markets went through a brief lull before surging. Record home sales and price gains were fueled by cheap debt for nearly two years. Now that rates are rising, some markets have given back some of the gains. Today we’re looking at the worst performing markets.
Canada’s Most Expensive Real Estate Market Is Down $2,200/Day Since Peak
Oakville, a posh Toronto suburb and Canada’s most expensive market, led the dollar drop. The price of a typical home peaked at $1,645,900 in February 2022, up 65.0% ($648,100) since March 2020. Just the increase made over the two years is the equivalent of 3 homes across Canada in 2005. And people say it’s a totally normal market, eh?
The only thing faster than Oakville real estate’s climb might be its fall. Prices dropped 5.0% ($75,800) in May, and are now down -12.4 -$204,100 from the peak reached in February 2022. About 31% of equity value gained since March 2020 has reversed. It’s kind of hard to imagine how fast that drop is — it’s an average decline of more than $2,200 per day since reaching its peak.
Canadian Real Estate Price Are Falling
Major Canadian real estate markets where the composite benchmark price of a home in May 2022 is lower than the peak price.
Source: CREA; Better Dwelling.
One Real Estate Market Has Lost A Third of Gains Over 3-Months
Cambridge, a commuter town from Toronto, is now in the middle of the largest correction in the country. A typical home peaked at $993,800 in February 2022, up a whopping 83.8% ($453,100) since March 2020. Prices nearly doubled over a two year period, a frothy gain for any market in the world.
Since peaking in February 2022, Cambridge has led the way lower for the country. Prices dropped 15.0% ($149,000) since peaking, making it officially a correction. Just 3 months reversed nearly a third (32.3%) of increases made over the 2 years prior. As we say in finance, risk happens fast.
Canadian Real Estate Prices Down From Peak
The dollar drop for major Canadian real estate markets that have fallen from the peak.
Source: CREA; Better Dwelling.
Kitchener-Waterloo Real Estate Is On Track To Reverse All Gains By Next Year
Kitchener-Waterloo, a commuter suburb of Toronto, saw the third biggest drop. Home prices peaked at $957,900 in February 2022, rising 74.1% ($408,800) since March 2020. It’s also in Southern Ontario, if you didn’t notice. Sensing a pattern here?
Since the February 2022 peak, Kitchener-Waterloo home prices contracted sharply. In May 2022, it was down 11.4% ($109,300) since hitting the February 2022 high. The market has rolled back 26.8% of gains made over roughly two years.. If this keeps up, the market should be back to where it started by the start of next year — do over.
Southern Ontario Real Estate Is Leading Lower
We swear this isn’t a Southern Ontario article. Southern Ontario real estate led the boom and appears to be leading the bust for home prices. The next three worst performing markets are also in Southern Ontario: London-St. Thomas home prices fell 9.7% ($75,600) since peaking, Mississauga fell 6.5% ($88,300), and Hamilton-Burlington is down 7.6% ($81,600).
The next few cities after those happen to be in Southern Ontario as well.
Even Toronto Real Estate Is Averaging $1,200 In Losses Per Day
Skipping two more Southern Ontario cities leading for losses, we get Greater Toronto. The index for the country’s largest market shows home prices peaked at $1,303,900 in March 2022. This was an increase of 58.0% ($490,000) from March 2020. Toronto went from one of the most affordable big cities in North America to being declared one of the world’s biggest real estate bubbles in less than a decade. World. Class.
Toronto home prices have since fallen 5.5% ($73,200) since peak, wiping out about 14.9% of gains made since March 2020. That’s a loss of about 1 in 7 dollars gained since the Great Rate Cuts of 2020. Or put another way, prices are falling an average of $1,200 per day. It’s the country’s 10th worst performing market.
Falling interest rates provided fuel for speculators, sending prices soaring. Now that rates are rising, the speculative mindset has broken. It’s too early for higher interest rates to have throttled capital so much in these regions. However, seeing some losses has shown people that home prices can’t continue to rise at the rate they did, and market participants are now engaged in price discovery.
I wonder what the real prices look like when you’re not using the board’s benchmark that’s perpetually adjusted to minimize price declines.
Median shows cities like Toronto are in a correction already. Cities like Halifax went full stupid though.
This article is actually pretty accurate and up to date unlike most media releases.
Ah, Oakville. The land where Toronto’s real estate developers all live. it’s funny how they all have a lot of opinions about how Toronto should look, ruling from the 905.
Next BoC meeting should take it to pre-pandemic interest rates and prices back to 2020 levels plus the increase in wages over the two years. Capital has a cost and making it free was a big problem.
Canadians need to worry about the banks. As home prices drop the profile of the banks massive mortgage portfolios shifts quickly. Currently most banks have 70% of their mortgage portfolios as uninsured which is “low risk”. With the growing volume of mortgages beginning in 2020, it won’t take long for a meaningful portion of the bank mortgage portfolios to shift from “uninsured”, to “insured”. The only problem, mortgage holders DO NOT have insurance. The banks will need to address this very quickly. I have no idea how this will turn out, but if history is any indication, banks will be more concerned about addressing their risk than they are about homeowners.
They only need to worry about the banks if prices drop, people won’t pay, and they can’t liquidate it all at the same time. Not even close to a reality. Even the US didn’t actually foreclose on nearly as many homes as people were in default, but that’s not the story we like to tell people.
Hey WF, apologies for the confusion. Canadians need to “worry about the banks” because banks will quite rightly be more concerned about bank balance sheets and shareholders than they are about ensuring homeowners keep their homes. During the US sub-prime crisis, twice as many “prime” borrowers lost their homes as “sub-prime” borrowers. As you pointed out, foreclosure is less common than most people think, because foreclosure occurs when the bank “takes away” your home usually forcefully. Unfortunately, more homeowners either walk away and hand the keys back to the bank or sell and take the loss on the home and end up with an unsecured loan at the bank for the shortfall.
Probably not all markets had the same February peak month (I think London, St. Thomas is around November). You should calculate the composite benchmark for each month for let’s say the past 6 months. Find the peak month for each individual market, than you can calculate the real drop for each market.
Peak to trough is the proper for since it’s used to determine a correction, not a fixed period.
I read something the other day that only 1 market peaked prior to this year, and it wasn’t London St. Thomas.
Most of the correction started beginning of March. It went deep into May and June. July will be bad as well. Still on average we’ll be up over the last 2 years, and we know the YOY gains were too far from the norm. Some will be pinched and most will be fine. Canada, along with US will announce recession after raising rates too high too fast when they should have started that process slower in the fall/winter of 2021. Quantitative easing will occur soon after that announcement where NA starts to stimulate the NA ecomony in the winter/fall of 2023 after election mumbo jumbo wins etc.
I wish people understood QE instead of just assuming it comes to save their ass every time.
They can’t use QE unless inflation falls below 2% or you’re get 10, 15, 20 percent interest rates.
I understand QE, call it or interprete it the way you want. Interest rates will start to fall in the winter if not sooner. Is that QE or not? How inflation is defined is faulty at best. How “QE” is defined and utilised is as well. Point is there will be a push to add liquidity into the market again sooner rather than later and that’s my point.
But you don’t. You think interest rates are designed to keep commission paycheques flowing, when lower rates are designed to INCREASE INFLATION.
Even in the early 80s the recession didn’t cause them to cut rates, it caused them TO RAISE RATES INTO THE RECESSION because inflation was still rising.
I do understand how it works. We may disagree and that’s fine. It has nothing to do with commissions. We can debate all day long why rates keep rising when they should or shouldn’t, or why they should have started raising rates in June of 2021 when they didn’t, or why they only react instead of being proactive. I’m not entirely sure you understand. You can’t compare today to the 80’s, that’s irresponsible. Hindsight is fun right? I’m all for the aggressive rate hikes to calm inflation, because if they don’t the Stagflation is going to be bad. So go big and deep. I’m just not entirely convinced that the inflation war will be won. But huge interest rate increases will have an impact on the economy as they should to your point. Where we differ I assume is in the “actual” state of the economy. I don’t mean today, I mean in 6 months when these rates take their toll.
“we can disagree”
You’re not disagreeing with me and I’m not disagreeing with you. You’re disagreeing with textbook economics and monetary policy, which is very different.
Poor research. The City of West Vancouver, accross the water from Vancouver is going to be far higher than Oakvilke. Another Ontario centric piece
Nah, poor research is not know West Vancouver isn’t a market by itself, it’s combined with Howe Sound in REBGV. Together they reported 60 sales last month.
Also the UN definition of City is a population of 50,000 people and most definitions are 100,000 people or more, so West Vancouver isn’t a real city by international standards
Yup Halifax had an influx of stupidity from Ontario, and out West.
Most will lose a good part of their wealth.
Halifax is not Toronto,or Vancouver. It’s not sustainable , and we don’t have the industry to keep it sustainable.
It’s only the greedy Realtors here that are trying to convince potential buyers that it is….
Interest rates are changing the picture quickly, that’s a bonus for those of us paying cash for our next home.
It’s interesting how biased Better Dwelling reporting is. Doom and gloom stories about real estate have always abounded here. Canada is accepting 400K + of new permanent residents every year, to say nothing about international students and temporary workers. Most of these folk settle in large metropolitan areas. Each and every one creates an immediate demand for housing. Add to it internal migration and investor demand and you’d have very strong demand. Given a limited supply of housing the future of real estate pricing doesn’t look all that bleak.
Immigration increased in the 1990s and new homes fell yet prices fell as well. It’s almost like they’re not biased by dividing two numbers and everyone hilariously declaring “we’ll just get 400,000 immigrants per year because those suckers will always pay more!” is biased.
An immigration target isn’t the same as the number of people.
In Victoria BC prices are still rising in the core municipalities, The benchmark detached home went from $1,446,000 in May to $1,464,000 in June. There is a small decreasing number of detached homes in the core and due to redevelopment they are only becoming scarcer.
The media is always doom and gloom. There is a fundamental housing shortage for sure. What we’re seeing is a huge shift from buying to renting excellerating the cost to rent. This will stabalize house prices and bring back more demand to support them. The article is correct.