One of Canada’s largest banks just delivered bad news for real estate investors—it’s a bubble already deflating. BMO Capital Markets warns that home prices have been sliding for over three years, more closely resembling the US housing crash in 2007 than Ontario’s last correction. The bank expects a long, drawn-out recovery, cautioning it’s “next to impossible” to recreate the conditions that fueled the boom.
Canadian Real Estate Is A Bubble—It’s Been Popping For 3 Years
Canada’s housing bubble won’t pop—it already has, according to BMO. “While many are searching for bubbles in the equity market, one continues to undo itself as we speak—Canadian real estate,” explained BMO Senior Economist Robert Kavcic.
Bubbles are only recognized in hindsight—after a market has already corrected. A bubble implies prices were excessively inflated, and without a correction, it’s arguable that an asset class was simply undervalued. That defence once applied to Canadian real estate, but not anymore.
“Home prices in Canada, and Ontario more specifically, are still slumping after peaking in early 2022. Interestingly, the current decline is tracking both the 1990s episode in Ontario and national US price trends after 2007. It’s a widely-held consensus that those two episodes were bubbles,” he explains, suggesting the current correction implies excessive exuberance.
Sharing a chart for historical context, he repeated a point BMO was criticized for making years ago: “We’ll reiterate, as we have from the start, that this cycle will be measured in years, not months or quarters…”
Canadian Real Estate Bubble Resembles US Housing Bubble In 2007
Source: BMO Capital Markets.
Most people are surprised by the above chart for two reasons. First, Ontario home prices have been falling for more than three years—since the start of 2022—despite record population growth that began in 2022 and peaked in 2023. Second, the trajectory looks strikingly similar to the US housing crash that kicked off in 2007. Even Canada’s state-owned mortgage insurer has recently argued that this time is different. It always is—until it isn’t.
A closer look reveals the more important takeaway—how long this cycle lasts. As Kavcic notes, Ontario’s trajectory now mirrors the US housing crash. If it continues this trajectory, it would take another 5 years to recover, versus the 8 years following Ontario’s historical trend. The American crash was sharper, but that helped restore affordability and balance the market faster.
It’s easy to dismiss this as an Ontario-only issue, but the province led the boom—and is likely leading the bust. Unless markets like Halifax somehow become more expensive than Toronto, the correction is likely to spread to further markets and strike right around the time they get Jordache jeans. The Atlantic Provinces demonstrating resilience can technically become more expensive than Ontario, but with Ontario representing 40% of Canada’s GDP and government employment being the driver there, it’s about as likely as a martian impregnating your neighbour.
Canadian Real Estate Bubble Formed By Perfect Storm, Next To Impossible To Repeat
The bank also pours cold water on the suggestions that returning the market to its glory days is as easy a lowering interest rates. BMO explains the boom was fueled by a rare mix of factors unlikely to align anytime soon: peak Millennial demand, record immigration, pandemic migration, excess liquidity, ultra-low rates, maxed-out valuations, and—most importantly—speculative market psychology.
“It’s next to impossible to repeat those conditions, and thus the bear market in housing staggers on until affordability and investment dynamics reset themselves,” warns Kavcic.
Gee I wonder which triple a rated securitized mortgages are out there right now as we grapple with rising rates of delinquency??? And how much money printing is going to be deployed by the geniuses to save those that should NOT be saved…….
Why can’t we just let markets be markets in Canada?
Interesting charts but meaningless the current market seems a long way from the bottom.. Current inventory is way too high, so a lot of fall still to come. At a best guess 20 to 30 % more possibly even more than that. The joker in the pack, is the price of gold. All bets are off on how high its going to get, and the effect its going to have on the general financial system. Currency problems ,higher bond rates who knows. The world banks are now buying gold instead of government bonds, meaning bond rates that have been relatively stable, may have to rise to compete with gold.
Correct.
But it’s not just inventory that will drive the fall. It’s the incoming great recession of the 2020s.
The flat sales mean that new projects are on hold or cancelled. All across Canada developers rushed to complete construction projects – driving the backroom push for more invaders and more workers on site. Now those workers are not needed. Wage pressure is downwards, job losses rising.
The perfect storm is coming. No employment for construction – which fuels near 20% of our economy at this point in our broken housing sale based economy. All those tradesmen, architects, project managers etc who can’t find work, on top of the real estate agents, cleaners, movers, staging crews etc.
These job losses will drive fire sales and crash prices as people attempt to stay solvent. The current liberal gov will not be able to solve the jobs crisis because they refuse to invest in projects to create new industries and employment opportunities. It would take dozens of massive national projects to absorb the workforce currently deployed to build shoe box condos in Vancouver, Toronto and the other urban centres.
And here’s the kicker – with no jobs for the invading migrants that the Liberals are using to both pad their electoral vote column, and drive fake GDP growth to look good on camera – there will be a national backlash against the invaders who are driving down wages.
We’re already seeing that today, and things are still relatively good. Just wait until it’s bad.
We’ve got a fed gov that has run us almost bankrupt – no fiscal room left to address the crisis.
Lord have mercy on this country.
A 20-30% drop from the peak of insanity is barely making a dent. It needs to fall a lot further to restore affordability.
a 20 to 30 % droop from where it is now
Quick to forget or try and bury it money laundering played a role in all this. Single families given access to cheap cash enabled bidding wars btwn ppl and dirty money. Prices have fallen and will further , not overnight. Some areas will correct harder than others, some not at all. Those hoping for 20-30% drop , must live or want to buy in the hot spots. To think Eastern Canada has very affordable homes already and expecting further price drops is unlikely.
Why can’t we have an independent representative of the current state of real estate and not someone biased from a bank? Why can’t they even come close to stating the obvious. Prices need to fall to specific levels to attain affordability at average incomes? We are going much lower than most could believe at this point.
I think 25 percent further sounds reasonable
If you add in the devaluation of the CAD since peak 2022, these declines are already closer to 35-40% in real purchasing power. But, agreed, that the declines to-date aren’t sufficient to reignite any first-time home buyer demand. Another 20-30% down might do it, but that will take several more years. Don’t rush in kids, take your time.
This crash has only just started.
It’s being kept afloat by record immigration numbers – over a million in 2025, over 2 million in 2024.
Ignore the government’s official numbers (they are all lies). Dig into the data yourself. Around 50% of students become perm residents over time. Then you count refugees, asylum seekers, permanent residents (what the gov tells you about) and then this secret: ANCHOR BABIES. Which are a huge category in themself.
We’re heading to a perfect storm. Flat condo and home sales mean massive job losses in construction, which means flatter condo and home sales – more job losses.
The system cannot sustain itself. We have seen a small correction based on the fundamentals – and the collapse is to come after.
The only thing driving prices higher at this point, is the complete debasement of our currency thanks to Liberal Gov borrowing and inflation. This would be sustainable if wages were rising to match – but they aren’t – because of the rampant invasion migration.
It’s going to be a rough few years.