Canadian Real Estate Prices Sees Its Worst Fall Since 2014
Canadian real estate prices are still falling. Oxford Economics (Ox Econ) updated its housing outlook with a key insight being home prices are still projected to fall further. They say Canada is only about half through the correction—if things don’t break. If things get really bad, the firm warns that home prices can be cut in half, and fall back to 2014 levels. Canadian real estate prices are falling, and expected to continue doing so in the near-term. The firm’s baseline scenario forecast sees home prices falling 30% in total, from peak-to-trough. That leaves us just under halfway to the target, with another 17% in value to go. If this occurs, housing would just touch the top of the affordability range, though they warn Toronto and Vancouver would still be unattainable to most of the population. Obviously, home prices won’t fall right across the country by the same level. They expect home prices to fall sharpest in metros that saw the highest price gains, and biggest erosion of affordability. That means places like Hamilton (-34%) and Kitchener-Cambridge-Waterloo (-33.6%) are expected to see the sharpest drops. Meanwhile, markets with more modest movements like Regina (-10.7%), and Calgary (-11.8%) will see more tempered reductions. A baseline scenario is the most probable, but proper forecasts include multiple scenarios. The scenarios model in different circumstances that influence the final result. If things like gross domestic product (GDP) growth are better than forecast, so will the outcome for home prices, and vice versa. The ‘moderate upside’ scenario is the firm’s view of what happens without a recession. Inflation subsides very quickly, real incomes get a boost, and GDP rises 0.4% in 2023. In this scenario, home prices fall 27% from peak-to-trough. In a ‘moderate downside’ scenario, a decline in home prices extends further into the economy. Household wealth and consumer confidence suffers a temporary setback, and GDP contracts 3.3% in 2023. In this scenario, home prices fall 34% from peak-to-trough. Much worse economic conditions, but home prices don’t see a big drop with that kind of fallout. The worst scenario is the ‘severe downside,’ an extreme tail risk event that involves a shock to the financial system. In this event, GDP contracts 9.9% from peak-to-trough, typically over a period of time instead of just one year. Persistent lower output and capital accumulation occurs, with a severe shock to the credit supply. In this scenario, house prices collapse 48% and fall back to 2014 levels. All forecast outcomes involve a double digit drop to home prices. This acute shock to affordability makes housing unaffordable to most of the population, which never lasts too long. When high home prices price young adults out of a city, they move to places with greater opportunities. That will eventually lead to a prolonged downturn, as people seek greater opportunity elsewhere.
Tags : Canadian real estate Oxford Economics housing home prices