Things are about to get worse for Canadian real estate, according to a credit rating giant. Fitch Ratings dropped its latest analysis to clients on risk in the mortgage bond market. The agency’s analysis shows high flying global real estate prices are likely to correct, with Canada expected to experience one of the biggest booms and busts in the world. Rising mortgage rates and deteriorating economic conditions are seen driving the delinquency rate higher, but not above pre-2020 levels.
Canada’s Housing Had One of The Biggest Booms, Followed By Bust
Canadian residential real estate prices showed one of the sharpest climbs in the world. Home prices climbed a whopping 41% from 2020 to the peak in 2022. The gain was just below the US (+43%), which made one of the world’s most aggressive climbs.
Such a large jump in a short period has produced lofty valuations, and the agency expects a pullback. Canadian home prices are forecast to fall 15% from peak to trough, with the agency seeing losses throughout this year. It’s the second biggest forecast correction from the agency, with Australia (-16%) expected to take a slightly bigger hit.
The agency estimates Canadian real estate prices were 29% overvalued at the end of 2022. With surging wages, falling home prices, and rate stabilization—they believe the overvaluation will come down sharply in the coming months. Though they don’t expect the overvaluation to completely disappear, especially in Toronto and Vancouver. They’ll take large hits though.
Mortgage Payments Are On The Rise, Delinquencies To Follow
Mortgage payments are on the rise, providing a little stress for a share of households. The agency found fixed rate mortgage borrowers have seen monthly payments rise $300 on average. Variable rate mortgage borrowers took a bigger hit, with an average increase of $700 per month. Though there’s a few reasons to believe the potential economic fallout presented in the media is overamplified.
Not as many people are exposed to variable rate mortgages, and many experienced a boost in savings. Only a third of households have a mortgage, and of those Fitch estimates 70% are on five-year fixed rate terms. That’s a very tiny segment exposed to a sharply rising overnight rate, and there are tools to mitigate the pain such as extending amortizations.
Still, when combined with weakening economic conditions, delinquencies will rise. The agency is forecasting the arrears rate will climb 64% to 0.23 points of mortgages in 2024. It’s a sharp increase from current levels, but still below pre-2020 levels. Velocity might make it feel like there’s a big change, especially if you’re suddenly seeing power of sales when they have been scarce for so long.
Since 2020, cheap credit and assistance preventing defaults, distorted the system. As that credit gets worked out of the system and defaults normalize to non-stimulus conditions, things are seen as returning towards pre-2020 metrics when it comes to defaults and sales. Prices appear to be the only exception when it comes to their forecast.
Home prices aren’t seen as fully correcting the overvaluation. The agency explained these expectations are based on the US having a mild recession. Since the trade relationship is so close, the size of an American downturn is an important factor. If things erode in the US worse-than-expected, they warn it can test Canada’s resilience.
Average prices are already 15% below their peak (CREA HPI). During this entire correction banks etc have “forecasted” a price drop that already happened.
Wondering how many of those who have no mortgage or those on a fixed rate, have other dept/loan vehicles such as HELOCs for alternative investments into real estate.
For years, this site and a few others have predicted the demise of housing in Canada.
I am unsure what kind of interest drives this behavior; however, if you want to bet against the market, you also need to talk about the timing of the events.
Making predictions without a time horizon is not very useful. Some would say they are just wishes.
I feel like I’ve been reading this article for twenty years..
yep, I concur.
right
exactly, when is this ‘bust’ coming. It’s desperately needed. When housing prices double in ten years then drop 17% that’s not a bust.
Look at it this way. You are now 20 years closer to the inevitable. Feel better?
No matter how many times the boy cried “wolf” and how many times he was ignores, at the end the wolf did come.
Lucky for you, interest rates haven’t been this high in 14 yrs.
I agree.
If i read every year these guys wrote articles…
It would be 10 plus years with very little that came true. But i do like the reality REMINDER
No one seems to mention there is a housing shortage in Canada. We have immigration at an unprecedented level of 500k per year. Where will they live? Deep pockets are waiting in the wings snapping up distressed sales and are already out bidding first time buyers , new immigrants cannot buy a home here for 2 years as per gov legislation. Those that need a place to live, will rent from those with deep pockets who bought the distressed sales, hang onto them, the market recovers ,they sell at a profit . It’s already happening. As to mortgage default..Yes some will . Most will come from sub prime mortgages that were already paying higher than normal rates. The Ontario teacher’s union has invested in sub prime and should those default, the value of that pension fund will take a hit. Banks are not in the business of foreclosures,they will work by extending amortizations , switch to interest only, skip payments, and just about any means necessary until the
dark cloud passes. And it will.
They forecast 15% peak to trough. That’s already happened
No fall of property prices seen in Feb 2023. Many houses are getting multiple offers specially those houses which are below 1 million.
What a crock of shit…sorry…but immigration combined with the lack of infrastructure hurts Canadians more than anyone ..preference is given to immigrants before locals in many situations ..and many immigrants who are successful choose to look after other immigrants first..whereas if a Canadian gives preference to a Canadian it’s called racist and discrimination. I don’t blame immigrants tho…it’s 100% our governments fault..their lack of infrastructure, lack of responsibility, wasting of money and selfishness and discriminatory policies.
According to ChatGPT:
In previous years, Fitch Ratings has also expressed concerns about the high level of household debt in Canada, which could pose risks to the housing market in the event of an economic downturn or a sharp rise in interest rates. In a report published in 2018, Fitch Ratings warned that the Canadian housing market was highly overvalued and vulnerable to a correction, especially in the cities of Toronto and Vancouver where prices had risen rapidly.
Overall, Fitch Ratings’ outlook on Canadian real estate prices has been generally cautious in recent years, highlighting the potential risks and vulnerabilities in the market while acknowledging the ongoing demand and supply factors that are supporting prices.
Bravo Fitch on your consistency!
Same!!!!!!
It’s obvious that the Bank of Canada doesn’t work with local government. We need only to fix the ridiculous zoning bylaws in every Town, City and Municipality to allow for multy low rise units where the infrastructure already exists, and we can thus save the Greenbelt, at least for now.
Fitch estimates 70% are on five-year fixed rate terms.
Yeah I think that estimation is off. Canadianmortgagetrends.com reports 57% of new mortgage borrowers choose variable, as of January 2022.
Everyone I know has been riding that variable rate for years.
I genuinely don’t understand this line and why there isn’t more context given around it: “Canadian home prices are forecast to fall 15% from peak to trough.” Prices have already fallen more than 10% nationally since the peak have they not? Pretty easy to forecast a storm when you’ve already been struck by lightning.
“Better Dwelling” AKA “The Sky is Falling”
The real estate market in the GTA has fallen 16% from the peak. We already know that. This is “The agency explained these expectations are based on the US having a mild recession.” Makes no sense.
People are unwilling to invest mainly because of these types of articles, investors are scared into less risky investments other than real estate, which will slow the economy, or at the very least slow construction.
In my small town three hours from the GTA, a 15 year old, three bedroom house asking $629,000 sold for $775,000. Almost 25% over asking. Two weeks ago.
If there’s a historic correction coming people
One day, it’s going to crash. It can be every 20 years, or every 25.
It’s the same article published every year and eventually it will be right; then they can write their book on predicting the event.
The Canadian housing market is like terminal cancer that will eat the whole economy bit by bit. To sum up, Poor third-world countries have corruption but Canada has a housing market.
Bull’s eye.
Couldn’t agree more.
Being a Negative Nelly, Me thinks the whole things in the toilet!!
The rise of Housing price is not different from the other necessary commodities in the economic system of the world. Capitalism fails, emperialism rises. This where goverments fail. Ballancing economic, social & political issues must be the main duities rather than encouraging the growth of emperialism. You know what that is to happen untill Jesus Come
I agree.
If i read every year these guys wrote articles…
It would be 10 plus years with very little that came true. But i do like the reality REMINDER
Sad writing…..and not much is ever came true
Can the BOC stop inflation? If not costs of borrowing will continue to rise and prices will continue to fall
The number of new immigrants far exceeds the number of new houses. Do your math and be realistic. The market never lies.
Ratings agencies never seem to account for how absolutely mental Canadians are for RE. And why would they? They’re accustomed to analyzing and projecting for rational markets. Canada really defies both logic and expectations.
Much of the real estate industry in Canada has been,and still is, living in a sort of delusional dreamy mindset.
The housing market especially is much more vulnerable than many think.Do not count on immigration to prop up a house of cards.
It’s also likely that a huge home price decrease will help the economy in the longer term.
If it becomes necessary to raise rates more in the near future then those who are in greedfog will learn a hard lesson. Good !
Issue is land is being sought after by more than just Canadians. Land will never depreciate altho it fluctuates, regardless of what institutions do to try and keep prices the same it wont happen. Always someone who wants to develop near industrial centers and nova Scotia is far overdue with its harbor attributes, altho still largly underdeveloped and even with the archaic nature of Halifax itself, as newcomers fill our voids with workers along come the developments which ultimately drive prices. Our own residents for the most part are lax in pro advancement but the rest of the world has clear vision. Why else was the international purchasing power halted in mid stream? Stop outsiders from using and buying up property means demand slows the economy.. add more taxes lol..always their answer