Canadian real estate has seen some positive growth but won’t recover to peak valuations for another half decade. That was the take from BMO Capital Markets, who sees demand getting a boost from a few factors including cheaper, easier credit. However, they don’t see home prices returning to their peak until 2029, as a combination of factors that occur once-in-a-generation are now behind us.
Canadian Real Estate Fell 19% Since Hitting A Record High
Canadian real estate prices have been on a wild roller coaster over the past few years. Home prices surged 65% from 2020 to the record high in March 2022, after the Bank of Canada (BoC) slashed rates to a historic low and piled on quantitative ease (QE) to stimulate record home sales. A year after hitting that high and rates began climbing, prices plunged 19% and remained 17% lower as of last month.
Rates are now coming down again, but BMO doesn’t expect anywhere near the same level of price growth. In fact, they expect it will take more than 7 years to recover—and that isn’t far off from historical norms.
“While resale prices have found a floor across most markets, it’s still a long way back to the 2022 highs—as we’ve often said, think years not months,” says Robert Kavcic, senior economist at BMO.
Canadian Real Estate Prices Won’t Recover Peak Until 2029
The bank acknowledges the upside factors that many real estate bulls cite. There’s falling interest rates, extended amortization, and the federal government intervening to introduce mortgage credit capacity—despite the post-pandemic BoC Deputy Governor Carolyn Rogers warning it would be a mistake and reduce affordability. That is factored into the recovery, and they even make generous assumptions in their modeling.
“Indeed, even our base-case view, which incorporates a stable economy, steady wage growth and neutral interest rates, home prices don’t push through 2022 levels until about 2029,” explains Kavcic.
The seven year return to peak may sound like a long time, but it isn’t in real estate terms. According to the bank’s math, the 1995 Vancouver real estate crash took nearly 9 years to recover. Then there was Ontario’s early 90s crash that took 15 years, though inflation-adjusted Toronto didn’t recover for a whopping 22 years.
“Seven years from peak back to peak is not all that uncommon. Such a duration would be in line with some of the more drawn out price corrections seen in the past, but not as long as the deep and prolonged 1990s bear market,” he explains.
Canadian Real Estate Has A Lot In Common With The 90s Bubble
The bank expects a prolonged recovery time due to the peak of the bullish forces that drove Canada’s long-term boom. Those forces include Millennials hitting their demographic cresting—with the youngest ones already 34, their family-forming years (and need for more space) is coming to an end. It coincidentally peaked along with international migration, which has already begun to lose steam before new limits were imposed. Interest rates are also unlikely to return to the period of low post-Great Recession, as global bond yields normalize.
“Suffice it to say that this was an extraordinarily bullish trio that won’t be repeated,” Kavcic explains.
He doesn’t see a 90s style correction fully repeating, since that involved a “deep and progrolonged,” fiscal and currency crisis, and a sudden jump in interest rates in the mid-90s. However, he does explain this market is more like the 90s real estate bubble than many realize.
“…that piece of history certainly rhymes: Housing valuations entered the 1990s at similarly stretched valuations; investors and “lack of supply’ drove the narrative; the peak of the Baby Boom turned 34 years old in 1993, just like their kids today; and robust international immigration flows were cut in half from 1989 to the mid-1990s. That’s a rhyme, alright,” he warns.
The bank of Canada must step in and drop rates faster to zero.
Housing is of CRITICAL importance to Canada and prices must be supported at all costs.
You do realize that it was artificially low interest rates that partly was responsible for the real estate and asset-inflation bubble in the first place. Also, given the upcoming tariffs, if we reduced interest rates that much it would have long term negative implications on our bond market and the Canadian dollar would take a hit against the USD at exactly the wrong time, as it would fuel consumer inflation and energy costs. It would wipe out any benefit even if the carbon tax was removed from fuels. Bad idea all the way around!
You can’t reason with bots/willfully blind people.
Low rates = bad for middle class, but they don’t care as they see their paper wealth inflate. Then complain about $20 eggs.
No mention of the impact on everything in Canada, including demand for housing, should Trump impose 25% tariffs on our exports to the US.
Bond rates are rising fast and Canadian bond rates are now at 3.54% lower by more than 1% compared to US, UK Aus and NZ. bond rates which are all nearing 5%. The gap was 1.5% a few days ago so the gap is narrowing, and Canadas bond rate is rising to compete.
US mortgage rates are at 7% so expect a 6- 7% rate in Canada in the near future.
Thats if the bond rates stabilize. If not we are in for a big real estate crash and consequent recession. The UK government is having finance problems and their mortgage rates have gone up. Trumps ideas and plans are being affected by the bond trade as the cost of government borrowing rises.
A person has to be careful not to read too much into short term fluctuations as they pertain to the longer term trend. And trying to directly tie Canadian mortgage rates to those of the US is a fool’s game. Big real estate crash? Based on bond rate fluctuations? I suggest you study up on macro a bit first, this is outside your lane.
Bond rates are going up but have stabilized in last few days. As for that being a short term trend. Its looking like a long term trend and mortgage rates are going up not just in Canada. The US deficit and the UK borrowing requirements have to be funded and even the European bond rate is rising. Canada is at the back of the bus and cannot decide the direction of bond rates to any extent. US and Canada mortgage rates are set by each countries bond rate The US and Canadian bond rates cannot differ too much or the Canadian dollar will collapse . This would bring inflation and a subsequent higher interest rate so you cannot win.
My family forming years seem gone thanks for decades of a poor job market and housing inflation. I lost my job thanks to the government and Corp push against remote work, and the flood of labor. Then thanks to the rent bubble am back at home on a couch. Can’t even get a min wage job. Have to study options trading to try and make grocery money. Gotta decide soon whether to move abroad if I ever want a home or family, no point in staying in Canada either way, since QoL here sucks. Can’t believe my grandparents fought for this country, they’d be disappointed.
Wages commensurate with inflation, a reassurance in 2021 feom Tiff that rates would remain low for an extended time that PM > “rates are at historic lows GLEN “, then boc pulling the rug . Setup for you’ll own nothing and be happy. The infiltration of politics by unelected foreign entities needs to end. One cannot be a master of 2 destinies.
Me, myself, believes that this will be catastrophic for the Canadian economy. Real estate is the largest sector and stabilizing, or falling home prices, will crash the economy. The government must immediately take the following steps
1. Allow 80-100 year mortgages. 30 years is too low and housing so still too cheap. After all, the word comes from the french ‘mort-gage’ which means pledge for life. The cost of such mortgage will be super low for youngsters starting a family. Such mortgages are common in Sweden and Switzerland. We need to follow the example of such excellent European countries.
2. 0% down-payment for people under the age of 50 buying first home. Why is down-payment needed at all to buy housing? It only makes young people not being able to afford housing. Afffordability for young people must be increased immediately.
3. 0% interest rates for 5-10 years so market can recover before raising them again.
4. To stimulate demand, 40% of CPP funds must be used only to buy housing. We need to write them directly into the law.
We should aim to make average price 2 million, maybe 3 million, instead of 1 million by 2029.
So they tried some of what you suggested in Japan back in the late 1980’s with multi-generational mortgages and negative yield interest rates, etc. Do you know what it created? Even larger real estate asset inflation and a recession that lasted 30 years. So that is what you think will solve Canada’s problems?
Good point. But Japan is a more insular society and the population was declining there. We can turbo-charge the economy too by accelerating population growth at the same time. The liberals want 100 million by 2100. I think we can do 200 million by 2100 and become a true superpower to compete with the larger economies. We have to just keep housing prices high, affordability high and population high. Only thing low should be interest rates. This is the correct recipe for perpetual growth for the next 50 years.
There is no economic model that backs up the success of that. Foolish – and obviously ignorant of what the Canadian market/economy can sustain.
I have seen you post this before. Get educated and try to keep up with reality.
The youngest millenials are 28 fyi haha, not 34.
Good eye! Maybe Stephen will correct that.
You’re correct.
How about directing growth northward to make it a more viable place to be, deliver free crown land to encourage the move, and bring the national average price back down below $350K?
Interesting idea. While Canada has an amazing amount of crown land available, it would require a mass migration to have any serious impact on average prices. You’d need to require entire major cities. The UK did it when they built Milton Keynes in 1967 to handle the overflow from London. That said, London is still insanely expensive both to purchase or rent.
We are not in a recession. We are in a depression. 2 million ppl don’t use foodbanks during a recession. When this dark cloud over our heads lifts, there will be a feeding frenzy. Just watch USA in a few months.
You do not know what a depression is. My grandparents lived through one in the 1930’s. You stood in line for food, and when you finally got to the “food bank” all you received for the week was 1 loaf of bread, a few potatoes, a half block of butter, some oatmeal and if you were lucky, a bit of pork roll. That was not 5% of the population – that was 25%. If you think the US is a beacon, wait for four years, only the rich will be happy. If you are lucky enough to live in Canada, you are witnessing what happens when an capitalist system takes over in a socially-responsible free market model. BTW hope you are rich and won’t need any health care.