Canadian real estate prices are still falling, and a prominent research firm expects further declines. oxford economics (Ox Econ) today updated its Canadian housing outlook. A key insight is that house prices are still projected to fall further. They say Canada is only about halfway through the adjustment — unless things break down. doing.
Canadian property prices are only half off the bottom
Canadian real estate prices have fallen and are expected to continue to fall in the short term. The company’s baseline scenario forecast sees house prices decline a total of 30% from peak to trough. We are now just under half of our goal, leaving us with another 17% of value. If this happens, housing will only reach the top of the affordable range, but Toronto and Vancouver remain unattainable for most populations, he warns.
Clearly, house prices aren’t going down at the same level across the country. They expect home prices to fall the sharpest in metropolitan areas that have seen the highest price increases and the biggest erosion of affordability, namely Hamilton (-34%) and Kitchener-Cambridge-Waterloo. (-33.6%), where the steepest drops are expected. On the other hand, slower-moving markets such as Regina (-10.7%) and Calgary (-11.8%) see more modest declines.
Home prices plummet despite good news
A good forecast includes multiple scenarios, although the baseline scenario is the most likely. Scenarios are modeled with different situations that affect the final result. If something like Gross Domestic Product (GDP) growth is better than forecasted, house price outcomes will be better than forecasted, and vice versa.
The “moderate upside” scenario is the company’s view of what would happen in the absence of a recession. Inflation will subside quickly, real income will be boosted and GDP will rise by 0.4% in 2023. In this scenario, house prices fall 27% from peak to trough. Yes, house prices are still falling. Because housing prices are already falling and adapting to the lack of affordability. Humans tend to move when opportunity arises, and unstable shelters are unlikely to continue to attract people.
Canadian house prices could return to 2014 levels at worst
In the ‘moderate downside’ scenario, the decline in house prices extends to the economy. Household wealth and consumer confidence will temporarily retreat and GDP will shrink by 3.3% in 2023. In this scenario, house prices fall 34% from peak to trough. Economic conditions are much worse, but house prices are not likely to fall significantly under such influence.
The worst-case scenario is a ‘serious downside’, an extreme tail risk event with a shock to the financial system. In this case GDP shrinks by 9.9% from peak to trough, and usually he shrinks over a period of time rather than over a year. Continued declines in production and capital accumulation will occur, severely shocking the credit supply. In this scenario, home prices would fall 48% to his 2014 level.
In case you didn’t know, all forecast results include a double-digit decline in house prices. This might come as a surprise at first, but given the recent price hike, this severe shock to affordability has made housing unaffordable and long-lasting for most of the population. No. Rising house prices move young people to places with greater opportunities. It will eventually lead to a prolonged recession as people look elsewhere for greater opportunities.
