Canadian Real Estate Prices Forecast To Rise While Incomes Fall: Fitch Ratings

In Canada, it only goes up. Well, when it comes to real estate prices, anyway. Fitch Ratings‘ sent its latest global real estate forecast to clients this week. The credit rating giant sees Canadian home price growth slowing but still firm. At the same time, this isn’t driven by lower rates or higher incomes. They actually see rates rising and disposable incomes falling in the country. In the Canadian real estate bubble, home prices don’t need income growth, apparently.

Canadian Real Estate Prices Forecast To See Growth Slow

Canadian home price growth is expected to slow, but slower than this is still fast. The agency’s forecast shows 5 to 7% growth in 2022, less than half they had forecast last year. In 2023, the rate is seen as falling further, as home prices weigh on themselves. A lack of affordability is expected to drag demand and prices. 

Home price growth is accelerating now, so why do they see growth slowing? High interest rates and inflation are expected to turn into a drag on growth. Rising rates are higher, but still too low to prevent demand from falling enough to slow prices. 

Canadian Disposable Household Incomes Are Forecast To Fall

Canadian real estate prices are one of the few things expected to always go up. Incomes aren’t so lucky. The forecast shows disposable incomes falling about 5% over the same period. It might be surprising if you haven’t followed this situation, but it’s very clear why it is happening. Disposable income has seen a temporary boost over the past couple of years. 

Part of the rise in disposable income was due to government assistance. Support programs had initially replaced every $1 of income lost with $2 in assistance. Falling was inevitable as aid tapered, most of it gone by last month. Some economists think incomes will “grow into” the elevated levels reported, like a soft landing for earnings. Fitch isn’t sold on that narrative, seeing it just straight up falling. The honesty is refreshing. 

Affordability Will Deteriorate At A Similar Rate Seen This Past Year 

Let’s put it together. Canadian real estate prices are forecast to rise while incomes fall. Obviously, this creates a worse situation for aspiring homebuyers, but that’s what many forecasts see. As you can see in the chart below, the gap between home prices and income should widen by about 10 points. 

Canadian Home Prices and Affordability

Graph shows the mid-point of the forecast ranges.

Source: Fitch Ratings, Haver Analytics, Statistics Canada, Teranet/National Bank of Canada

The jump is HUGE. The next two years are forecast to worsen affordability at a similar pace to 2016/2017 and 2020/2021, respectively. Only one big difference — the deterioration in affordability was due to surging home price growth in those periods. Rising home prices and falling incomes are combined to create a similar effect going forward.

The Fitch Ratings forecast happens to capture the Canadian real estate bubble perfectly. Home prices are forecast to rise, even as household incomes fall. Real estate is seen as a stronger earner in this economy than the people that occupy the space… and no one thinks it’s weird.

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  • questions guy 12 months ago

    why report such bunk?

    • Gerald Haw 12 months ago

      Because it highlights how delusional the people rating the financial system are? A bigger concern is every financial institution is about to receive a report that says it only goes up — your expensive research says so.

  • GTA Landlord 12 months ago

    Fitch also said the US was fine in 2006. I think it’s what they do, but important to highlight how silly this whole charade is.

    • Omar 12 months ago

      Let’s say they learned a lesson and are way better at this now. This would be about as close to a bubble forecast as one can get.

  • Yan 12 months ago

    Fitch is even more bullish than the real estate. They were forecasting, what? 2% or something?

  • Mike 12 months ago

    The trend is your friend, as an institutional investor you don’t go against it. If it turns you get sympathy and a bail out.

  • Exasperated Prospective Buyer 12 months ago

    Isn’t it lovely that all these non-government agency forecasts, as well as all government-related communications and decisions, absolutely refuse to mention the insane levels of money laundering affecting the Canadian real estate environment? Technically, they should all be quoting reports by Transparency International, Sam Cooper’s book “Wilful Blindness,” etc. — but NOBODY is.
    To be clear, the current situation has nothing to do with immigration. Most immigrants — recent or not — are typically unconnected to criminal organizations, perform low-income jobs that require them to do a lot of unpaid overtime, and do not have the means to be driving real estate prices up. This has everything to do with foreign and domestic money laundering operations — but the government has no interest in checking the source of the money used for real estate transactions because real estate overvaluation is “great for the economy” (read: for their real estate tycoon friends).
    What I am saying is not necessarily a jab at the Liberals. I am confident that the Conservatives have MORE real estate tycoon friends. As for the NDP — they keep talking about “increasing supply,” because obviously all we need is to enrich real estate developers by subsidizing low-income housing at the periphery of cities, so that low-income people can be forced to buy more cars and increase pollution while driving for an hour each way to/from their minimum-wage jobs. (These areas are typically served by one bus at best, and people have to switch buses to get anywhere. Without a car, one’s commute can easily become 2 + 2 hours per day.)
    This is clearly meant to keep all of us poor — and, ideally, our children poorer. Why is the issue of money laundering nowhere to be found in any of these “expert” assessments of the housing market? News outlets also barely mention it — they keep talking about “supply and demand” as if this were the main issue. I live in a rented apartment in one of the best neighbourhoods in my city, and about a quarter of the buildings around here are empty. We have a large university AND a large college in my city, so this is in no way demographically justified. A significant portion of this country’s real estate is owned by wealthy lawbreakers (again, foreign or domestic) who will respond to interest rate increases, additional taxes, and any other half-measures short of confiscation by pushing prices up all the time — and nobody in any position of decision is even acknowledging it, let alone actually start doing something about it. (Identifying suspect purchases is actually really easy. In my city, in the last two years, I have witnessed prices cooling down in several areas of interest to me several times — and whenever that happens, all of a sudden there are 2 or 3 property purchases within just a few days that go 100K above what people were previously paying for similar properties. It’s happened so many times that it’s become nauseating — and, again, nobody in a position to investigate is asking any of these buyers if they can legally justify their money. Following these episodes, regular buyers go into a panic and then prices “organically” go up.)
    Working people really don’t stand a chance anymore in this country — whether they were born here or not. All the talk of an increasing “moral hazard” really makes me angry, because it places at least part of the responsibility for increasing real estate prices on regular buyers, who are supposedly deluded. We are not deluded — what we are is aware that prices will continue to increase because Canadian governments of whatever political orientation really, really want them to.
    Of course, another issue that should be discussed is the fact that local investors are allowed to benefit from the low-interest rates (and other incentives) that were supposed to support first-time buyers. I’ll leave that topic for another contributor to develop. Honestly, we all know these things, and we are just watching our country gradually become one of those undemocratic regimes we deeply despise. Many of us wish we could engage in additional activism on this issue and force the government to change direction, but we are way too busy doing one of those jobs that require a lot of unpaid overtime… I’ve been surviving on 6 hours of sleep per night for years, and I still don’t have a house. O Canada!

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