Ground Hog Says 6 More Months of Canada Housing Price Cuts

The trajectory of Canadian home prices is beginning to resemble an old Road Runner cartoon—the one where Wile E. Coyote steps off a cliff and stands in midair for a few seconds, wondering where the ground went.

In this case, Wile E. is assuming the pose of a ground hog that’s just seen his shadow, meaning six more months of collapsing prices.

According to a new report from Oxford Economics, the nosedive in Canadian home prices is only about half over: the 14% drop since prices peaked in February 2022 will continue until the summer, Oxford projects, with at least another 16% decline by the middle of 2023.

Oxford is projecting that home prices in Canada will decline by a total of 30% before any rebound starts, and—beep, beep! (yes, another Road Runner reference)—that’s their best-case scenario: worst-case—for sellers, that is—home prices could drop by as much 48% from the 2022 peak.

But don’t expect the folks up north to get too excited about it. “We see a moderate downturn being possible, with defaults and insolvencies rising a little, but not drastically,” Tony Stillo, director of Canada Economics at Oxford Economics, told the Toronto Star.

Nothing drastic, eh? Certainly nothing catastrophic, like Boston sweeping the Stanley Cup finals in June.

Oxford reported that residential investment has shrunk by 13% since March 2022; it projects that investment will fall another 19% by the third quarter of 2023.

Housing price declines will vary at a local level, with Toronto trailing behind the national average just shy of 30%, the Oxford Economics report said. Hamilton is seen dropping 34% and Kitchener-Cambridge-Waterloo by 33.6%. Those regions saw some of the quickest price gains, which is why they’re having the hardest falls, Stillo explained.

He offered several possible scenarios for how the housing market will play out:

If global supply chains improve and inflation eases, Oxford anticipates that the floor for housing price drops will be 27%, the best scenario. A strong labor market—buoyed by an influx of government-sponsored immigrants—could also accelerate a faster economic recovery and restore investor confidence in the market, Stillo told the Star.

“We have seen a downturn in real estate with construction and consumers pulling back, but if we continue with this job growth that will temper the [housing] decline,” Stillo said.

However, while the job numbers are positive, the housing sector is leading the economy into a recession, which in the worst-case—a recession with a surge in defaults and insolvencies—housing prices could fall to nearly half of what they were in February 2022.

“This is quite severe and highly unlikely,” Stillo said, placing his personal bet on a 30% decline, which other Canadian economists are characterizing as a “crash.”

Which reminds us of the time Harry Truman said he was “looking for a one-armed economist.”

“These guys always predict one thing, and then they say, ‘on the other hand, Mr. President,” Truman said.