Canadian real estate prices went from the fastest growing to the fastest falling in just a few rate hikes. The US Federal Reserve Bank of Dallas (Dallas Fed) Q2 2022 index of real home prices shows Canada made the biggest drop in the G7. Still, Canada retained gains making it the largest real estate bubble of the group. Leading the way higher was the recently declared real estate bubble in the United States.
Canada Is Leading The Way Lower, America Leading Higher
Home prices are predictably falling the fastest in economies most sensitive to rising interest rates. Canada (-4.3%) made the biggest drop across the G7 in Q2 2022. It was followed by Japan (-2.7%), France (-0.7%), UK (-0.6%), and Italy (-0.4%). Just two countries, the US (+4.7%) and Germany (+0.2%), increased against a backdrop of rising interest rates.
All But One G7 Country Has Seen Home Prices Grow Since Last Year
Nearly all countries have retained annual growth, with the US (+13.4%) making the largest gains since last year. Canada (+12.4%) slipped into second, followed by Germany (+3.7%), Japan (+3.4%), UK (+2.7%), and France (+2.0%). Italy (-0.7%) is the only exception when it comes to annual growth, with a minor decline for its real home prices.
Canadian Home Prices Grew Nearly 2x The Rate of The Next G7
Canada might be leading the way lower for residential real estate prices, but it inflated the most. Since 2020, Canada (+42.8 %) has seen real home prices rise nearly double the rate of the US (+24.0 %), the second closest country. Germany (+15.7 %), the UK (+10.6 %), France (+8.4 %), and Japan (+7.2 %) demonstrated much more modest gains. Italy (-0.4 %) was once again the only loser by this measure.
G7 Real Home Price Change Since 1975
The inflation adjusted change of residential real estate prices since 1975 in G7 advanced economies.
Source: US Federal Reserve.
Canadian real estate prices are the fastest falling home prices across the G7, but were also the fastest growing. Unlike other G7 countries, Canadian households have yet to see a major correction in the past 30 years. This not only makes them the most highly indebted of the group, but also the most vulnerable to rising interest rates and inflation.