Canadian Real Estate Prices To Fall Up To 26%, Bay Street Firm Warns Institutions

Canadian real estate prices may take a big tumble, Bay Street researchers warn. Veritas Investment Research, a prominent Canadian firm, sent institutional clients a real estate forecast. The firm warned real estate price declines are unlikely, except in the event of supply shock. They now believe supply shock may arrive soon, and can send prices up to 26% lower.

About The Numbers

Veritas’ analysis is geared to investment managers, so it’s different from a bank forecast. The firm used regression analysis in its conclusion with various risk scenarios. They concluded months of inventory has the highest correlation with prices. Recently, the market has been tight, sending prices higher during a recession. They believe that’s about to change when mortgage deferrals expire, and things get back to “normal.” 

The firm’s model is based on a percent of mortgage payment deferrals turning into inventory. They gave scenarios for 5%, 10%, or 15% of homeowners with deferrals turning into sellers. This isn’t the same as assuming they’ll default. While some people will default, you typically never default if you can sell first. Canada’s tight housing supply means most people can do that, instead of defaulting. This is a point the CMHC has recently made as well, so it’s not an outlandish assumption. It’s actually an ideal scenario.  

We should also first add, they warned clients about the uncertainty during the pandemic. Since pretty much nothing has been predictable, they’re advising clients to watch the months of inventory closely. In other words, do your own due diligence, but this is what they’re watching for and expect at this time. 

Canadian Real Estate Prices To Drop Up To 11%

Canadian real estate prices are expected to make modest to substantial declines. The firm’s model suggests potential price declines between 4 and 11 percent. As stated before, this is based on the assumption inventory will rise as a result of deferrals turning into listings. This doesn’t include additional supply, which Canada is currently building records amounts of, and is often flipped back into resale markets. 

Toronto Real Estate Prices May Drop Up To 26%

Toronto real estate has the largest dive in the forecast. The firm expects a potential price drop between 15 and 26 percent. For the regional models, they assumed a distribution of deferrals was similar to that of all real estate markets. However, CMHC deferral data shows Toronto may be overrepresented in the deferrals

Vancouver Real Estate Prices To Drop Up To 17%

Vancouver real estate’s prices are forecasted to make a smaller drop than Toronto. The firm sees a potential price drop between 10 and 17 percent. They are once again assuming a proportional distribution of deferrals. Worth mentioning, the CMHC also forecasted smaller price declines for Vancouver as well. However, their numbers didn’t show as quick of a recovery for prices as Toronto. 

The firm expects this price movement around six months after the inventory increase. The timeline puts it fairly close to when the CMHC has been forecasting. The forecast is a little more aggressive than those of banks and other vested interests. However, it’s similar to what other institutional risk advisory firms have forecasted. It’s also similar to Canada’s state-backed mortgage insurer. 

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  • Party on 4 years ago

    LONDON — The coronavirus crisis pushed global debt levels to a new high of over $272 trillion in the third quarter, the Institute for International Finance said, as it warned of the “attack of the debt tsunami.”

    Among advanced nations, debt surged above 432% of GDP in the third quarter — a 50 percentage points increase from 2019.

  • Billy the heretic 4 years ago

    With rates being this low for years to come, new money being printed, construction materials going through the roof and mass production of so called “New Canadians”By the millions being planned, I call BS on discounts in housing any time soon. Actually mass price increases are on the horizon.

    • Mtl_matt 4 years ago

      We’re already at the point that the best thing for a canadian university graduate is to leave Canada and go work in the US. Similar or higher salary, much lower taxes, and about 75% less for a similar home (not mentioning better weather).

      If that’s true for canadians, it’s also true for other immigrants. If the US opens up immigration they’ll poach our immigrants.

  • Erik 4 years ago


    • SH 4 years ago

      Please. You think the Trudeau government will allow anything to happen that might actually benefit Canadian citizens from the working and middle classes? Don’t break out the champagne just yet.

  • SH 4 years ago

    Nope, not with 1.3 million+ newcomers set to move to Canada by 2023. There will be no appreciable drop in values.

    Where’s that national foreign ownership tax the Liberals promised in the 2019 campaign? Conveniently forgotten?

    • The Truth Shall Set You Free 4 years ago

      Why would anyone come to Canada? Right now businesses are dying. People were coming here for a new better life but they won’t come here if their life is going to be worst than where they were and worst than if they move to another country also promoting immigration (which is pretty much any first world country.

  • Mark Atyeo 4 years ago

    Makes for an eye-catching headline but there’s no breakout of what type of real estate they’re talking about. Yes, the prices for condos in the Toronto and Vancouver markets are likely to decline. They’ve already begun to.

    But thanks to multiple rounds of quantitative easing the world is awash in cash. That cash has caused inflation but not at the consumer level, yet.
    Inflation has manifested in the financial markets and it may (I think it will) trickle down to the consumer but go through the ‘more affluent’ asset classes first. One of those more ‘affluent asset’ classes is real estate.

    Quality property in stable countries is likely to remain very valuable. There will be market ups and downs but in my opinion a 26% across the board decline in the Toronto housing market is nonsense.

    • Math Is Hard 4 years ago

      Is this my neighbor that said this exact thing in 1981, when everyone was buying as many properties as possible, and then went bankrupt when they found out prices can only detach for so long, regardless of whether interest rates dropped 10 points?

      • The Truth Shall Set You Free 4 years ago

        Happened in the 80s and then in the 90s. This idea (that it won’t happen to me) is the same idea people at those times were thinking as well. In the end home prices need to match income levels and when you have average family yearly incomes stagnant for pretty much the last 25 years where average family yearly incomes are under 80k with average income to price averages now being 14 years vs 4-5 years which it always has been historically there is no doubt that there will be a correction. Question isn’t if it’s when. Throwing money keeps things artificially high and our government needs to keep prices high to make ends meet as they like burning money. Keeping real estate high means higher tax dollars collected which in turn means more money to burn. This won’t end well. I always thought a correction was coming but the idea that it’s only 26% in areas like the GTA and GVA are laughable. In order for home prices to align with income levels a correction of over 50% will need to happen. This is starting with the condos but will spread to all other home types as a drop in condo prices will cannibalize buyers of town homes which will then cannibalize buyers of semis who will then cannibalize buys in the detached home sector. Always starts with condos.

  • fred 4 years ago

    They do not know about Canada, , Bank of Canada pumping money in the market by increasing buying back mortgage security , then bring interest rate to 0 , then negative , as they said , The price may go up another %20 To %40 . Not to mention Canada real estate is the best place for money laundering,
    as us estate department report in 2019,
    The whole GDP of Canada depends on real estate , even if the price stay steady the GDP will be negative , so real estate has to go up every year %10 -%20 to show growth.

    • Rob 4 years ago

      You might want to consider what happened in Japan starting 1989.
      Eerily similar economic environment.
      ZIRP and QE leads to deflation eventually. Doesn’t lead to economic good times. History rhymes.

      Japan – Can happen (how’s that)

      • Erik 4 years ago

        Ya, that’s been one of the two models predicted, a collapse like 2008, or the Japan model…. But the way the Canadian govt is handling it, the third model could just be to never let it sink till the last baby boomer is in the ground having the long sleep.

      • fred 4 years ago

        Japan dose not 1- bring so many immigrant and 2-control supply of housing in a way that it will be always shortage of housing so as a result the price goes up.

  • Neo 4 years ago

    So basically late 2018/early 2019 pricing? Big whoop.

    A real correction would be back to 2016 prices where they started going parabolic.

    • Math Is Hard 4 years ago

      You know a 45% increase is wiped out by a 30% decline, right?

      • Marcel Pigeault 4 years ago

        Oh my! Someone knows what a denominator is!

    • The Truth Shall Set You Free 4 years ago

      Home prices should go back to where they were in 2005 to put home prices in line with yearly income levels.

      • Marcel Pigeault 4 years ago

        It is called ability to pay and this is directionally proportionate with interest rates when demand is strong.

        • Erik 4 years ago

          That’s sound economics. However, international money laundering into the Canadian market as well as govt complicity change things. Considering real estate is 20 percent of GDP or more, they will try to keep things going as long as they can. To big to fail now

  • Matt Hughes 4 years ago

    Hey look the same firm that in 2010-2013 claimed a collapse was only months away… yep…

  • Erik 4 years ago

    They started going parabolic ten years ago… This shit is insane since covid. Everywhere is expensive now.

  • Arthur 4 years ago

    Did the Veritas Investment Research forecast have any commentary on the Bank of Canada’s(BofC) policy interest rate at 0.25% or any rate changes impact on their forecast?
    Isn’t it overly optimistic that large financial institutions will accept such a low rate for an extended time frame? Banks can usually manage to squeeze a few extra basis points out of borrowers. I am not going to bet that the BofC can maintain control of the overnight rate at the current level against all other market forces.

  • Patrick 4 years ago

    This may be true for Toronto but here in the Niagara Region houses have doubled every three years…then every 2 years and it seems like they will double in value again this year alone!!! The crazy part is that the houses are still selling with multiple offers and over asking. There is a huge demand from people giving up on Toronto and moving here. Builders can’t put up houses fast enough as there aren’t enough people working in construction here.

    • John Hughes 4 years ago

      In KW right now if you don’t overbid at least 50k you will never get a house… and the majority are now going 100k+ over. These aren’t the old realtor trick of being listed low just to get bids… these are starting prices that are 20% over last years selling price.

  • Sam 4 years ago

    Prices has is no chance to drop.
    COVID was the the hardest stress test for the real state, we pass it easily and guess what prices up more than 10%.
    After this real hard test, i recommend to STRONG BUY.
    – No enough Inventory , means prices will go up.
    – 1.5 immigrant coming , means prices will go up.
    – COVID pandemic : 1 month for the vaccine , more jobs means prices will go up.
    – Real state history since 2000 shows real state is very strong, and it increase every year .

    Simply don’t listen for people learn nothing from the past .

    • Luigi Vampa 4 years ago

      LoL love the irony in limiting real estate history to begin in 2000, followed by saying people learn nothing from the past.

  • Millennial 4 years ago

    Toronto drove your prices up in the boonies… yes you kw, guelph , niagara ,hamilton, woodstock….etc…
    Toronto isnt making money the way it used to, give it a lil time and see what happens to the value of your properties.

    If a Toronto house sells for 1.3… a house in (example) Kitchener for 900k is a steal with 3-400k in extra money in your pocket. BUT If the house in Toronto drops to 900k believe me nobody is paying that much for your suburban ×××thole .

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