Canada’s Real Estate Correction Is Far From Over: Oxford Economics

Canada’s real estate correction is all set to continue, following a brief interruption. High-profile macroeconomics firm Oxford Economics sees the Spring bounce as temporary. Their latest forecast shows the correction is only halfway, and will last well into next year. Higher mortgage rates and macroeconomic erosion may also prevent a rapid recovery.

Canada’s Real Estate Correction Is Only Half Over

Canada’s real estate correction hit pause after the central bank literally said “pause.” In January 2023, it looked like home prices hit a bottom after falling more than 17% from the peak (March 2022). Prices reversed course, increasing tens of thousands per month as pent-up demand released. Now prices in key markets are dropping, as the latest hike proved there was no pause. 

“Canada’s housing downturn is not over, as we think the spring resale housing revival is nearing an end,” says Tony Stillo, the firm’s Director of Canada Economics. 

Stillo’s team sees home prices falling another 10% by the first half of 2024. In total, a typical home across Canada will have dropped between 20% and 25% from peak-to-trough, in line with their earlier forecast at the start of the correction.  

Source: Oxford Economics. 

Canadian Real Estate Prices Won’t Bounce Back As Easily This Time

Canadian home prices bounced quickly in January, but that might not be the case next time. Real estate corrections usually are accompanied by rising unemployment, and falling consumer demand. It wasn’t the case with the first half of the correction, where the economy outperformed. The sentiment just shifted, and sentiment shifts with words like “pause.”

Stillo’s forecast sees the final act of the correction to be more than just a shift in sentiment. “We expect a second leg down in house prices and sales will be driven by the onset of recession, higher mortgage rates, tighter credit conditions, record unaffordability, and the impact of government policies to curb speculation and ban foreign buyers,” he says. 

Canadian Mortgage Rates Are Expected To Rise Further

Canadian mortgage rates have been so low for so long, it may be hard to see further increases. Unfortunately, they’re likely to rise even further according to the firm. They see the latest BoC rate hike helping to push mortgage rates up to 6.1% by H2 2023, further weighing on housing.  

Source: Oxford Economics. 

Higher costs already have investors moving away from real estate investment. Stillo’s analysis points to residential investment’s 3.9% quarterly decline in Q1 2023. They see further declines through next year, as construction, renovation, and home resales will further slow as financing costs rise, and returns fade. 

Source: Oxford Economics. 

Stillo previously warned that correction mitigation is possible in some cases. However, each time a correction is mitigated, it requires a larger correction. It’s a trade off for short-term satisfaction at the risk of more economic damage. 
It’s kind of like using a payday loan to make the minimum payments on your credit card. If you’re in a pickle, it looks like it works, but then you’re left with a much bigger problem. Now Canada is at the point where experts see further mitigation can produce a financial crisis.



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  • Trader Jim 9 months ago

    Keep in mind they’re using the inflation-adjusted HPI, so a 25% correction is closer to a 40% correction when adjusted.

    • Jamie Price 9 months ago

      Ha! Must be why CREA changed the HPI, to hide the fact it’s such a sharp frickin’ correction.

      There’s houses in my neighbourhood in Toronto going for $200k less than they were last year, so I’m not even sure how they’re calculating these things.

      • Ethan Wu 9 months ago

        Indexes are indexes, and always subject to the bias of its creator.

        I explain to all my new analysts that they have to understand this, since “statistics don’t lie” don’t lie is correct, but the truth is subject to interpretation and design.

        There’s nothing more biased about the CREA index than the CPI index. Understand how that number influences the market, not whether it’s an accurate representation.

  • Omar 9 months ago

    25%, minus inflation, and hold it for ten years. Only way for the market to correct to the point it makes it worth living here. Have no idea why so many people move to Canada and then find out it doesn’t just rain houses that print $100k/year, their friends here just wanted them to pay rent in their investment property.

    • Ethan Wu 9 months ago

      Took 22 years for the 90s correction to recover in real terms in Toronto. The problem with housing as an investment is that most people don’t know their cost basis, or opportunity loss. It’s like talking to middle aged guys that made a little money on game stop, but won’t talk about the losses they made trying to trade it.

    • Richard Zywotkiewicz 9 months ago

      Well, with our 12 to 14% increase year-over-year in Calgary, bring on the downfall.

    • Kejake 9 months ago

      Prices have already climbed back up and average across Canada is up year over year 6.7%. We have a massive supply problem and with 500,000 per year coming to Canada nothing short of an economic collapse will stop the real estate market. Just increase mortgage amortization to 50 like Australia. More preferable than economic disaster.

  • Ray 9 months ago

    Interest rates are finally starting to take their effects. Panic is starting to kick in.

  • David Todtman 9 months ago

    The reality is that the bursting construction bubble is one of many crises in the capitalist system today. The author above wrote, “Stillo previously warned that correction mitigation is possible in some cases. However, each time a correction is mitigated, it requires a larger correction. It’s a trade off for short-term satisfaction at the risk of more economic damage.”

    The boffins can’t solve their own crises from within the narrow limits of the system itself. For the boffins, the problem with high inflation is that it destabilizes the price system. From a political perspective, they don’t like inflation because it leads to social unrest. They can’t solve inflation without putting people out of work. But they don’t like that either because that too enrages the masses.

    We are in an historical period: the crisis of the system–capitalism–is mounting. More to come, and it’s going to become interesting.

  • Andrew Baldwin 9 months ago

    When does a housing correction becomes a housing bubble bursting? If this is not what will happen, it is certainly a wake-up call. Statistics Canada, the Department of Finance and the Bank of Canada have all been guilty of incompetence in this regard. The Bank of Canada has used a household-oriented measure of consumer price inflation as its target inflation indicator ever since the beginning of inflation targeting in February 1991. It has resisted even the most obvious reforms, like switching to the CPI for All-items excluding mortgage interest as the target indicator. What is really needed is a proper macroeconomic measure of consumer price inflation to be used as the Bank of Canada’s inflation target, as argued in the paper that I co-authored in 2017, “What Should an Inflation Index Be Measuring?” Ideally, owner-occupied housing would be measured using a net acquisitions approach, that would give a MUCH bigger role to housing prices than the official CPI. It may surprise people that the only component of the official CPI that actually relates to current house prices in isolation is the replacement cost of depreciation component, and it is really an imputation for the assumed increase in new dwelling prices. Another component, land transfer taxes, where one would expect house prices to play a role, isn’t properly measured at all. It is proxied, or at least was until recently, in a manner too crude to be believed. Canadians need a real macroeconomic consumer price inflation measure that will protect them from housing bubbles. When will we get one?

  • Tammy Elesko 9 months ago

    1,000,000 new immigrants every year. Only 200,000 homes built annually. Prices will not drop. Canadian real estate is still a great long term investment especially with the capital gains exemption on your primary residence.

  • Dennis_K 9 months ago

    I’m not sure if the ‘measure’ of price changes matters so much, in comparison to what the costs actually are, and what people are earning, in real dollars. As other
    contributors have noted, (relative) stats can be manipulated to suit whatever story
    you want to tell.

    Looking at the National Bank of Canada Housing Affordability Monitor for Q2 of 2023 (dated June 1, 2023), it’s still showing a clear discord between median (household) incomes and what they define as Qualifying Incomes for a composite of all dwelling types in each city across Canada (see their Table 1). Only in Quebec City are the numbers close, with Edmonton a further second place (and Winnipeg thereafter). Multiples of home prices to incomes for those three cities currently sit at just under 5:1, which was traditionally the upper threshold of affordability pre-2000. Home price to median income multiples for Toronto (12.4), Vancouver (14.2), Victoria (12.6) and even Hamilton (10.0 – which can be considered a surrogate for the extended region around the entire Greater Toronto Area) are still too great for an average household to afford.

    While I believe the decline in prices is indeed a good (and necessary) trend, I still see much room for affordability improvement.

  • Tammy Elesko 9 months ago

    I tried to post a comment that without a change to the mandated immigration levels and lack of new supply entering the market, Canadian real estate will only increase. Why was it not posted? Does this site only accept comments falling within it’s narrative and confirmation bias?

  • Frank 9 months ago

    Paint it any color you like, there is still and will be a housing shortage for some time to come. Supply , demand is low due to manipulation of stats. Let’s not forget, wages have not kept up at all , and earn over $100k a year, 40% in payroll tax, not to mention tax on fuel, food, goods, services, property tax, no wonder the Gov has a triple A credit rating , on the backs of the working class.

  • Frank 9 months ago

    Supply and demand matters. When manipulated statistics color the landscape and wages have not kept up with the economy, what would you expect? There will be no major correction and banks are seeing to it by extending amortizations . Soon intergenerational mortgages will be here. Those hoping for a massive correction will ne disappointed.

    • Tammy Elesko 9 months ago

      Agree. Those waiting for Vancouver houses to drop below $1M will be left out of the market. I actually feel sad for those that follow Bill Fergusons Facebook group. He’s doing a disservice for his members. If they had bought homes in 2018 when he started his page they would be way further ahead. Instead, he censors all dissenting posts and blocks all members that stray from the narrative. Maintaining the biased illusion that his opinions are correct.

      • Kevin 9 months ago

        Bill’s a nut, but Vancouver homes showed a 2.0489% CAGR since 2016. A buyer is only ahead of someone that kept their money under their mattress.

        I don’t think we’ll see homes in Vancouver under $1 million ever, but they’ll stagnate in real terms over time at some point.

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