Canada

Canadian Real Estate Prices Expected To Drop 24%, Can Crash 40%: Oxford Economics

Canadian real estate prices might be in for a bit of a dip if one of the world’s leading forecasters is right. Oxford Economics’ latest forecast shows home prices falling 24% by mid-2024. Higher interest rates and anti-speculation policies are forecast to begin the price declines this fall. If these measures fail to correct prices and they rise further, a crash of 40% and a financial crisis is expected.

Canadian Real Estate Prices Are Expected To Fall 24%

The firm sees a substantial decline in home prices, but not enough to roll back to pre-2020. Beginning this fall, they’re forecasting a 24% decline that will bottom by mid-2024. Home prices have increased 50% since the Bank of Canada (BoC) began cutting interest rates. Even with this correction, the firm expects prices to still be 15% higher than pre-2020.

Canadian Home Prices Expected To Fall 24% By 2024

The average price of a home in Canada, the household affordability range, and Oxford Economics’ forecast for future price gains.

Source: Oxford Economics.

Don’t expect home prices to bounce back quickly afterward. From 2025 to 2030, they see supply outpacing demand and keeping annual growth under 1% for five years. This will allow incomes to catch up and affordability to return by mid-2028. The forecast is an ideal combination of price declines and stagnations minimizing fallout. If this were to happen, they don’t see a recession or significant economic drag. Most of the price declines would be unrealized by owners.

Lower Home Prices Are Expected To Restore Housing Affordability

The Oxford Economics Housing Affordability Index (HAI) for Canada.

Source: Oxford Economics; Haver Analytics.

If Canadian Home Prices Keep Rising, They Expect A 40% Crash and A Financial Crisis

Just two years ago, the firm didn’t consider such a significant decline in prices possible. Then the boom in 2020 began, pushing home prices to an extreme. If prices continue the “unsustainable” climb, the correction turns into a crash. In this scenario, a 40% price drop would happen, as well as the potential for a financial crisis. They also stress it’s unlikely, but the 24% drop in their base case scenario can result in further fallout. Further research is needed in this area, which they plan to update us with.

Inflation Is Expected To Push Negative Returns Until 2030

The firm uses nominal price data, and sees inflation playing a big role in affordability. Investors may want to take note of this, since CREA’s benchmark is inflation-adjusted. Let’s assume the BoC manages a 2-point inflation target from 2024 to 2030. By 2030, the price of a home will be 5% higher than the inflation adjusted value in 2020.  The base case shows 5% growth over a whole decade, which is a big change from the past decade.

The firm argues a home price correction “may cause some near-term pain,” but it’s needed for a healthy economy. As mentioned, those primarily impacted would be recent home buyers and investors. The former is unlikely to realize any losses, since they would be living in the home for a while. 

The alternative, if the disconnect is preserved, results in long-term economic damage. Both the leverage required and perpetually diverting cashflow are big risks. Every dollar spent on housing is one not put into more productive parts of the economy. If cities prioritize home price growth ahead of local economic growth, future economic growth is stifled. When that happens, cities and countries providing a better value proposition become more attractive. Even New York, with an economy the size of Canada, struggles to keep its population growing at these prices.

52 Comments

COMMENT POLICY:
We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • M W 2 months ago

    Fingers crossed this turns out to be the case!

    • Mike Smith 2 months ago

      “The Canadian real estate market…”

      Anytime I see a headline like that I just chuckle.

      Should I read between the lines and assume you’re talking about the lower mainland in BC and the GTA + or – 2 hours drive in any direction?

      Is it time to sell Alberta and Saskatchewan real estate because prices are going to crash?

      • Ben 2 months ago

        Or the Okanagan, or just about any other region of BC. Prices are increasing sharply relative to wages in the rest of Ontario and in the maritimes due to a boom of Covid home buyers. So yes, basically everywhere EXCEPT for Alberta, Saskatchewan, Manitoba and Quebec is seeing a housing crisis. If those four provinces provided enough jobs for the country there wouldn’t be an issue, but the places where the jobs are located are expensive to live (Calgary being the obvious exception)

      • M W 1 month ago

        Why on earth are you replying to me? Where did I say “The Canadian real estate market…” in my comment? Did you mean to reply directly to the article and due to your no doubt late-stage arthritis replied to me instead? Or did your Alzheimers kick in and assume anybody would care about you chuckling to yourself?

    • Bob 1 month ago

      I hope the gov continue manipulating the market and Canadian functional idiots continue buying into that. It will be EPIC!

    • Bogdanoff 1 month ago

      freeland: Master! They went all in.
      bogdanoff: Dump it!

  • Mortgage Guy 2 months ago

    Give it to us straight Tony. It’s going to be 40% in Toronto, isn’t it? LOL

  • Ron Bruce 2 months ago

    I’ll believe this story when I see indictments for money laundering or moving illicit money.

    The only part of Canada that has a Commission investigating money laundering is in British Columbia. It’s a great place to start as Vancouver is the money laundering capital of Canada. Unfortunately, the Cullen Commission is undermanned and underfinanced since the accused have more financial resources to mount a defence. Ergo, everything works at a snail’s pace – stall, stall, stall. Even those complicit in money laundering (i.e. Realtors, Lawyers, notaries, Banks, financiers ) are working to cover up previous deads. FINTRAC and the CRA (aka sleepy-hollow) should be working as the plaintiff.

    • John 2 months ago

      Keep drinking the kool-aid. The money laundering, the foreign buyers, on & on it all BS spin that the government is feeding u. No difference than Trump telling the rednecks that the mexicans r the problem & need to build a wall.

      The issue is, in Van & T.O, people can afford it. It is expensive for sure, there are enough people that has the money to buy. That’s it. Real estate & all the related industries accounts for 40% of BC’s GDP, so people have money. But of course you are free to chase ghosts, maybe we should build a wall. Lolol

    • Diana 2 months ago

      I grew up in a mortgage poor home & vowed I would NEVER do that to my kids. Long story short…early on in 2020, I was finally in a much better position to consider home ownership. But after being ‘outbid’ at least 30-60k on any bid we placed on a home, I decided to pull out of the frenzy. I’m a VERY observant person & could CLEARLY see that this ‘frenzy’ was being fed by those who had the most to gain from what was beginning to happen- even in Winnipeg-where it no longer mattered the size of the home, the #of bdrms/bthrms, the area of the city (even if it’s outside of the city) pricing had jumped in MB SUBSTANTIALLY! (Up to TRIPLE increase from what it was b4 the pandemic)! So It’s happening EVERYWHERE in Canada☹️ This has definitely caused me to consider the alternatives (such as PreFab, RTM, KIT houses, self build, Tiny home etc…) No matter I decide, it will be a choice made as objectively as possible.

  • Tom Wolfe 2 months ago

    Add in seller panic and desperation. If they feel they have lost their down-payment they may focus on cutting losses.

    Here’s an idea – how about a shared-mortgage, where the seller co-signs with the purchaser, giving the bank 2 fish on one hook. It could help first-time home buyers. It could help vendors. Seems like a little twist on VTB mortgage.

    I apologize in advance if my innovation gets picked up causes more harm than good.

  • pdub 2 months ago

    Calling a $600K house affordable seems like a bit of stretch even for the median dual-income family at ~$105K/year before taxes

    • Fazid 2 months ago

      That’s why it doesn’t get affordable until “mid-2028.” Inflation has to crush the values down to reasonable financing.

  • Im Therious 2 months ago

    Russia: kleptocracy in plain sight guarded by the threat of jail or death.

    Canada: kleptocracy in plain sight guarded by bureaucracy, lobbyists and apathy.

    • Arthur 2 months ago

      Home equity borrowers will be dead in the water with a 40% crash. Their borrowing limit including the existing mortgage component will be quickly capped by their bank at 70-80% of the home’s crashed value. Any outstanding lines of credit will go from interest only to a principal + interest payment with a short amortization. Budget bedlam for sure.

    • Rick 2 months ago

      2025? Ok, we are short 1.5M houses/residences right now so supply is not going to catch-up or even start in 3 years time. Dear Oxford Economics: basic rule right? Demand is high price high, demand is low price low. In an area that covers 6M people in January 2022, there were only 550 detached single family homes for sale – so there are significant issues here that have little to do with foreign buyers (they are here yes as they are in every market as real estate is an asset class) and more to do with city and town “planning departments” that have planned for nothing. Years and years for a construction permit leads to this, combined with cheap money and little supply. Again, Toronto is not even in the top 50 most expensive places to live in the world, so from that POV it’s a bargain here – just local never appreciated how cheap it was. Housing prices have kept pace with those of the 1950’s when adjusted – so what we are seeing is delayed demand, poor planning, cheap money and low supply. That’s it. Nothing else sinister or untoward. And the cost to build here is still below global averages so again, still a bargain. If no one was buying, the prices would drop folks, but that’s not happening – places are selling for 500K to 1M over asking (detached single family homes here) so back to my initial stat of low supply.

      • Mack 2 months ago

        I don’t think it’s a supply problem I think it’s a investor, speculator, foriegn buyer problem.

        An earlier better dwelling article talks about how canadians have seen up to 92% of supply go to investors.

        1 in 3 detached single family homes are owned by investors.

        First time home buyers can’t compete with investors and speculators that have cash on hand and are willing to buy things with no conditions.

        I’m out in Alberta, I’ve been trying to buy a home for a while now and even here I am consistently outbid by investors with foreign buyer money or who are using the equity in their home(s) to purchase rental properties.

        It’s seriously messed with the rental market out here, whole houses with double car garaged used to be rented at around $1800/m-$2000/m. The current rental market right now is mainly out of town investors asking $2500+/m that’s an increase of $700/m in the span of about a year.

        Albertans don’t make that much 1.8 million tax paying Albertans make under 50k a year ( that’s just over half the tax paying population here) and that’s predominantly the people who are renting….a lot of people are going to end up homeless.

        There’s enough houses for people they’re just all being used as rental properties.

        Also it depends what list you’re looking at. TO is ranked 13th on this list which is based on sq. footage. In 2020 is was also ranked top 20 on another list.
        https://dailyhive.com/toronto/toronto-ranked-expensive-cities-to-build-home

      • KP 1 month ago

        The issue cause is a liquidity one masquerading as a supply one. Dry up the liquidity that the banks are flooding the country with and demand dries up. The supply issue is caused by investors buying and hoarding property. If you cut investors out of the equation, its likely that the supply issue resolves itself.

      • Marc Halioua 1 month ago

        100% RIGHT but this site is always doom and gloom

  • Remington 2 months ago

    Canada laughed at Americans about their house collapse regarding sub prime mortgages. Saying people who had bad credit were getting mortgages. I’ll tell you this, the scams going on in Canada to obtain Million dollar mortgages for people who work at Tim Hortons to which the banks are turning a blind eye to. Are going to make the sub prime fiasco look like a hiccup. I was offered those mortgages as long as I paid the right people. The only problem that came to mind is how I’m going to make the monthly payments.

    • Alex 2 months ago

      Yup, the fraud that exists in the real estate industry at all levels is staggering. This is naturally the result of what happens when people who make 55k a year are forced to buy 7 figure homes, lest they be lifelong renters – the markets creates demand by opening up a back door.

    • Steve 2 months ago

      People working min wage get million dollar mortgages do they…proof?

  • C 2 months ago

    We bought our first place 15 years ago and this was the same story “prices are going to drop” I guess if you predict a crash enough times you will eventually be right.

  • Shane-O-Mac 2 months ago

    If we are to follow what charts would call a mean reversion, prices would fall over 40% – over a period of time (1-2 years) and continue to fall lower than bottom expectations to find “rebalance”. Then eventually prices would begin to crawl up again in slow paces due to armed fear of future drops. So these suggested numbers are high.
    Looking at current average national price sitting at $810k+, and assuming we are cresting, I am conservatively predicting prices fall on average down to $400-450k – by 2024. They will eventually come back, but reaching today’s prices should take 12-15 years.
    If the plan is to buy and hold until death, then rates are low (for now) to make sense of the move.
    If you are 50 (my wife and I included), a current purchase would be financial suicide and future guarantee of refrained retirement due to carrying costs would leave me working until I don’t physically get up anymore. We would rather travel and look for international property at this time.
    See you all on the “other side” of this – because the last one in is usually the last one out.

  • Rolin 2 months ago

    BS! I believe that if Australian Real Estate would crash too. Prices in metropolis cities in Australia are even way higher than Toronto and Vancouver. So if Toronto and Vancouver crashes, they should crash too?

    • Ian 2 months ago

      That makes no sense because Canada’s number one trade partner has openly said they need 6 interest rates hikes while Australia’s number one trade partner has stable inflation.

  • Trevor 2 months ago

    Most the people commenting here are going to keep wondering why the prices are higher next year… completely ignoring fundamentals of the market.

    Anybody believing a 40% correction is blindfolded. Not to rain on the parade, but y’all aren’t in reality.

    • Rob 2 months ago

      What fundamentals could you possibly be referring to???? Insanity could be a fundamental I guess….

  • Jam 2 months ago

    Always predicting a bubble and crash and it hasn’t happened, at most prices stabilize or go down very slightly.
    Only way we will see a crash like that is if there is a recession, Toronto’s population suddenly stops growing and there is a flood of housing to increase vacancy rates that have again dipped less than 3%. It would require an economic crash to have a large number of jobs be lost and cause people to migrate to places other than toronto.

    • Trader Jim 2 months ago

      Show me a period where home prices have increased while interest rates increased. I’ll wait.

      • Patiently Waiting 2 months ago

        Agreed. But try to tell a homeowner this and they think you’re nuts! It’s as though everyone was asleep May 2017 to Nov 2019. If you bought a home in May 2017 for $1.9M you could have purchased that same home six months later for $1.5M. If you were willing to wait till March of 2018 you could have purchased it for $1.38M.

        That was a bubble and it did burst and there were many factors but mainly interest rates went from .5 % to 1.75% within 6 months.

  • RM 2 months ago

    I’m not questioning the modelling but, I don’t know, that still seems low to me. I think it’s difficult to account for a lot of the variables given our lack of transparency. I mean, will negative ROI investors keep their “investments”? Will dirty money exit the country if they see their capital devalue? Will the psychology finally shift to people not relying on real estate as an investment? How will of those households supposedly on the brink of insolvency manage it? Etc. There are so many factors and markets tend to over-correct. Rolling back to 2020 when prices were already insane (well, here in Toronto anyway), is all well and good except that inflation makes the landscape totally different from 2020. We shall see, I guess.

  • Peter 2 months ago

    Lots of demand no houses. Article says supply will outpace demand maybe if they develop land and build. It seems unlikely. They can only rise interest rates so much. That will not increase supply. Rentals are in demand too.
    By increasing supply that will stabilize prices and deregulation of development.

    • Lou Chao 2 months ago

      one housing start per 1.3 people. A lot of single person houses people plan on buying. lol.

      Remember, only the dumbest person would continue to move to a country without any jobs and worse standard of living.

  • Super Mario Minjo 2 months ago

    500k new permanent residents a year for the next three years, on paper. So probably 750k people moving to live in Canada per year. They never factor that in. What % of those new residents are going to live in Toronto/theGTA? Another baby brain economic analysis.

    • Simon Chan 2 months ago

      1990 called. It wants its narrative back, because that’s what people were saying about the immigrant influx at the time.

      It led to high paid locals fleeing to the US and immigration slowed because as dumb as Canadians thing immigrants are, they don’t just keep moving to a country with less opportunity than they place they live.

  • Rashid 2 months ago

    they also anticipated a crash in 2017 when MQR was introduced. as long as demand exceeds supply, prices wont crash. maybe dip about 10% but short term.

  • David 2 months ago

    Remington, anecdotal evidence makes for a great story, but nobody serving coffee at Tim Horton’s is running a million dollar mortgage through a bank. Sub prime in the US 2006 is completely different from Canada. I worked on Sub Prime mortgages in Canada while the collapse was happening in the US. Is there fraud? Sure, of course there is. You make it sound like someone popped out of a dark alley and offered you a mortgage. Fraud for shelter isn’t new, but it is not a systemic risk like you imply. That won’t sink the ship.

  • Atwalia 2 months ago

    The city of Toronto has already passed a motion to introduce the anti flipping tax, similar to the 1974 speculation tax, which had crashed the housing market overnight. The govt can easily introduce measures to curb the insanely rising prices with the speculation tax, tax the assignment sales as regular income, increasing the NRST and auditing the mortgage approval frauds.

    https://storeys.com/toronto-home-speculation-flipping-tax/#:~:text=In%20response%20to%20soaring%20home,people%20who%20own%20multiple%20properties.

    • Wayne Timmins 2 months ago

      If the Ontario gov’t or any gov’t for that matter wanted to slow the ball, they would have extended the NRST province wide beyond the GGH.

  • John 2 months ago

    Lol. Are these the same people that thought the real estate was going to drop when the pandemic 1st hit?

    • Mitch 2 months ago

      Oxford Economics are the same people who said it could be a 10% drop that won’t impact the economy before the pandemic, it’s going to be a 24% drop now that might cause a recession, and a 40% drop and financial crisis if it keeps going.

    • Jason 1 month ago

      Nope, that was CMHC, the one Canadian government sponsored organization with all of their analysts who should have been able to project the trajectory of market, completely missed the mark, literally could not have been more wrong. How does that happen?

  • Peeru 2 months ago

    Nobody is considering the new model “ work from home”, which has destroyed all the commercial buildings and offices. City used to get huge amount of taxes from those landlords, which is going to stop now. In my opinion, if you have a house, sell it , make money and go on rent and wait for market to drop. U will make that much money that even renting a house for two years won’t bother you.

  • Wayne Timmins 2 months ago

    There is no way such a correction will occur.

    There may be some cooling in large urban markets, but the outlying communities, even very rural are seeing significant upticks.

    Our immigration policy alone will ensure an inflated market place for many years to come.

  • John 2 months ago

    Sadly, the stratospheric rise in prices of homes in high demand urban areas like Toronto and Vancouver has been driven almost entirely by the Bank of Canada’s prolonged low interest rate policy. Remember that the federal government has amassed a huge debt through its year over year profligate spending. The interest alone on this debt as rate rise is becoming alarmingly high, cutting deeply into their ability to fulfil their basic program spending obligations. So the pressure on the Bank of Canada (supposed to operate at arms length from the government – this is laughable) to keep rates low has been huge. Additionally, the government wants to try and inflate away its debt on the backs of Canadian savers by keeping interest rates well below the inflation rate. Real interest rates are now ~ “negative” 3.7% on a one year GIC. If there is a massive correction in the housing market, and huge losses for the banks, responsibility and accountability lies solely with the current Liberal Government.

  • John 1 month ago

    Yes .. but it’s not the banks that are flooding the country with liquidity. They just pass on what the BOC is doing. And the BOC is just passing on what the government is pressuring it to do. So in the end it is the government that is pumping the country with liquidity and driving up house prices and historically low real interest rates. So if there is a collapse, there is one place and one place only that will have to take responsibility .. the current government.

  • Dennis_K 1 month ago

    As much as I’d like to see home prices decline back down to the realm of median affordability (i.e. 3-5x’s median gross incomes), if for no other reason that I personally have been badly affected by this 20-year-long pricing circus, sadly I have my doubts that such a retrenchment in prices would happen. The reason being that the conditions that have led to pricing exacerbations (over the past 20 years) haven’t been addressed – and no, it doesn’t have anything to do with supply.

    In my view, it has to do with the presence of excess liquidity and non-essential buyers in the marketplace;

    – excess liquidity: easy / cheap credit, bank of mom & dad, any capital unrelated to working (& paying taxes) in Canada, and laundered money as well as tax avoidance schemes;
    – non-essential buyers: speculators, reno-flips, ‘investors’, corporate entities, ‘trusts’ and people using real estate to hide money – anyone who doesn’t live and work here, and also doesn’t need a principal residence.

    Non-essential buyers simply add to the apparent ‘demand’, and don’t reflect the actual need for principal housing. Excess liquidity simply allows sellers to demand more, well, simply because more is available.

    Further, no changes have been introduced that enforce appropriate accountability upon the real estate profession (at least in Ontario) relative to their compensation structure (or at least a compensation structure that appropriately reflects whatever value-add and liability said services provide). It’s still heavily commission-based (including split-commissions), where all parties have every incentive possible to work against those who have most at stake: the buyers.

    And with the federal government’s proposed immigration targets (~400k / year for next 3 years), plus outstanding Afgani refugees (~32,000 as of mid-February 2022), plus an ‘unlimited’ amount of Ukranian refugees (for what is described for now on a 2-year temporary basis), this will certainly add to the physical demand for housing. Alone, this won’t cause prices to increase, but in conjunction with whatever newcomers’ ability to pay is (i.e. legitimate income, savings, illegitimate income, easy credit, etc.), it certainly can.

    • Dennis_K 1 month ago

      And even if the necessary price retrenchment does occur, the unfortunate thing is that only the top 2 quintiles of the working populace came out ‘ahead’ during the pandemic (see BD article from January 22, 2022), so those households are in a much better position to ‘scoop up’ properties that become available due to sales forced upon owners by changed financial circumstances. I would assume that the former households therefore have more leverage to acquire residential properties, than those who are in weaker financial positions who actually ‘need’ appropriate housing. And that doesn’t even include those households with access to liquidity from illegitimate or foreign sources.

      I think only in the case where laws change, which clearly prioritize single-family residential real estate as housing for resident citizens first, and as a commodity last, could we see a market that actually reflects both housing needs and the local ability to pay.

Comments are closed.