Canadian real estate is already in its largest correction on record by some measures, but it may get worse. A new Oxford Economics report forecasts further declines in home prices and sales as rising interest rates hit an already weak market. High energy prices, economic uncertainty, and stretched valuations are expected to add further downward pressure.
Canadian Home Prices And Sales Expected To Fall Further
Despite the severe correction in home prices, the firm sees them moving lower for at least a few months. “We expect home sales volumes and prices to slide this fall and into early next year as mortgage rates rise,” explains Tony Stillo, director of Canada economics at Oxford Economics.
He notes that home prices remain elevated relative to incomes, presenting further risk for homebuilders. Rising expectations of rate hikes add to that risk.
Bank of Canada Rate Hikes Expected Soon
The firm expects two rate hikes from the Bank of Canada (BoC) by the end of this year, the first within days. Next week they see a 25 basis point (bp) hike at the central bank’s October 28th meeting, and another in early December. Next week’s hike may be delayed by the recent weak employment data, according to Stillo. But he still sees a 50 bp increase by January, bringing the overnight rate to 2.75%, their estimate of neutral, where monetary policy neither stimulates nor throttles economic activity.
As economists are increasingly noting, the driver of rate hikes here isn’t an overheated economy. Weak economic and employment data reinforces that this isn’t an economy firing on all cylinders, but one that would struggle with rate hikes. However, Stillo explains the catalyst fueling rate hike expectations is energy prices.
Brent crude is forecast to remain above US$100 per barrel for six months, he notes. By their calculations, this is expected to push headline inflation into the mid-3% range in late 2026 and early 2027. Bond yields have already begun to reflect expectations of upward pressure.
“A rapid rise in bond yields will continue to push borrowing costs higher throughout the economy, weighing on interest-sensitive sectors like housing and spending on consumer durables,” warns Stillo.
Weak Hiring and a Shrinking Population Add To Housing Pressure
Higher interest rates won’t be the only factor working against housing activity in the near-term. “A weak job market weighed down by the ongoing trade war with the US, squeezed household incomes from high fuel prices, and a shrinking population will hurt housing demand,” explains Stillo.
He cites the 68,000 jobs lost in September—roughly 110,000 lost over the past two job reports—as evidence that hiring will remain weak over the short-term. A perfect storm of higher fuel costs squeezing disposable income, tariffs, and trade uncertainty is weighing on businesses.
Canada’s population declines are a less certain factor. Stillo expects the population to decline if policymakers maintain their goal of shrinking the share of non-permanent residents (NPRs) to 5% of the population by the end of 2027. The recent upward revisions suggest a much sharper decline would be needed to meet that goal. Oxford is awaiting Ottawa’s immigration update before revising its demographic forecast.
As for weaker households, they face a sticky situation. Higher rates will squeeze spending power, but so would higher energy prices and elevated inflation. “Elevated debt will continue to constrain spending by Canadian households and make them vulnerable to job losses, higher interest rates, and a resurgence in oil prices,” warns Stillo.
Oxford doesn’t see the downturn lasting forever—it only feels that way. The firm expects a housing recovery to start in the second half of 2027 through 2028, just a little over a half-decade since the correction began. Before then, rising borrowing costs and weak demand point to a near-term slump. However, with prices still stretched relative to incomes, Oxford warns the correction could prove deeper or longer than its baseline forecast.
Every professional i know is sitting on a downpayment with more than enough cash, but refuse to buy since they think prices are going to fall but it seems unlikely considering the government is willing to fork over every dollar we pay in taxes (and then some) to developers.
pro-tip: as long as the government bails out developers, you shouldn’t buy because it means they’re to keep them solvent (i.e. they’re zero market demand).
Keep in mind that “new home prices” as reported and new home prices when you see a salesperson are *wink, wink* “we’ll give you the same standard deal that everyone gets, you just don’t see it advertised.
Prices are still moving lower, but the industry is really bad with transparency. They think that helps, and that might have been the case in the 90s, but today that’s really not the case.
We need to stop blaming the developers when they incur countless amount of fees, charges, taxes, permits from all 3-levels of government. Here in Ontario its $270K per lot before they even put a shovel in the ground. Guess who absorbs that?…yes us the consumer. We need to go back to our government and demand to rid of all these unnecessary fees and bureaucracy.
Every professional you know is sitting on a down payment with more than enough cash? What profession are they in? Where do they live currently? How old are they? What tax bracket? No offense but this seems unlikely given the stats.
The spread between PPI and CPI is 11 points versus 6 points in the US. Any recovery will occur after or if we tame that beast. Canadians are currently on life support.
Overheated economy isn’t even in this universe right now. We’re about to see a global meltdown when they s**t hits the fan after US mid-terms, regardless of who wins.
Okay, but here’s the thing—home prices didn’t actually fall anywhere but toronto and vancouver, and both of those markets were basically just money laundering. So yeah, home prices SHOULD fall until normal people can buy them.
The problem is the government doesn’t want you to buy a home, they want them out of reach so they can tell Boomers they need to give the money to hedge funds to buy homes to “help” young people. The Boomers aren’t paying taxes anymore or working, they don’t give a f**k as long as they get free healthcare.
Even though I agree with you on some points. I am a baby boomer and I have paid my fair share in taxes and don’t care about free healthcare because its not free. We pay dearly for it. Don’t forget about the bidding wars we had and that went on for several years. People were bidding anywhere from $50K – $200K over asking which led enormous price increases over night. All those offers should have been transparent.
Millennial here, I don’t have a GP. YES you have FREE healthcare because I’m the one paying for it.
We are all paying for it not just you.
What a stupid comment ! Do you have any proof of that ? You are just jealous because you didn’t accomplish anything in your life ! You should be sued for defamation.
Famous last words before every run higher for home prices.
I’ll bet my dollar that home prices don’t recover in 2027 and that we need to see 40-year mortgages before any semblance of real resurgence.
At a guess and all these professional forecasts are a guess, regardless of all the various numbers they are calculating. Aways too many unknowns. I guess prices might start rising again in about 2 years. The question is rising from where 20 , 30 or 50 % below todays levels. The Canadian economy should by then be firing on all cylinders. Mining is expanding rapidly. Military production is ramping up. Look at the armored car manufacturer, trying to buy The Stellantis plant, Military aircraft orders are already happening, ammunition production is ramping up, The Swedish Gripen will probably go ahead. Europe is also looking at Canadian availability for their military production needs. The economy might be totally different in 2 years.
rolling stones , you can’t always get what you want , but if you try real hard you’ll get what you need ,but not a home you can afford to raise a family you can’t support and nothing but dual income to get by , the Canadian dream ? Did anyone mention the Bank of Mom and Dad that are gambling their retirement to support those they love? the underground economy built on Jello , and zero safety net , tip toeing past the graveyard , and the proverbial fan is still blowing smoke up your ass.