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Posthaste: Canadian home prices will experience 'sizable pullbacks' in cities you might not expect Back to video

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Home prices in Canada aren’t done falling this year as a lack of affordability and looming mortgage renewals weigh on markets across the country, according to an analysis from economists at Oxford Economics.

Oxford is calling for home prices to fall a further five per cent by the fourth quarter of 2024, with the drop from Canada’s home-sales peak in the first quarter of 2022 reaching 18 per cent, Tony Stillo and Michael Davenport, economists at Oxford and the authors of the report, said.

“We think elevated housing unaffordability and the growing strain on households from the wave of mortgage renewals will cause listings to grow faster than demand in H2 (second half) this year,” Stillo, chief Canada economist at Toronto-based Oxford Economics Canada, said in a press release.

Stillo and Davenport predict home prices in Canada’s major metropolitan areas will take hard hits.

“We anticipate widespread house price declines in all Canadian metros we forecast in H2 2024,” they said in the report.

For example, they are calling for prices in Toronto and Vancouver to fall seven and 10 per cent, respectively, by the end of the year — more than the national average — due to a lack of affordability. But other parts of the country will also experience drops in home prices.

The report calls for “sizable price pullbacks” in markets including Halifax, Calgary, Quebec City and Winnipeg.

Oxford is calling for home prices in Calgary to fall 5.1 per cent in the third quarter. Alberta’s oil capital was a house-buying juggernaut with prices rising 11.6 per cent from the early 2022 peak through to June 2024.

Prices in these cities are expected to feel the effects of the coming wave of mortgage renewals as some people are forced to list their homes but sales fail to keep pace.

That will happen “more so in markets where there’s been higher indebtedness,” Stillo said.

Interest rate cuts by the Bank of Canada “will breathe life into housing,” the economists said, however, continuing reductions in the benchmark lending rate won’t be enough to save many home owners from renewing mortgages at “significantly” higher interest rates.

Stillo and Davenport call for mortgage payments as a share of disposable income to peak at 9.3 per cent in mid-2025, a level that has not been seen since 1990.

“This building mortgage payment wave will keep a lid on demand for new mortgages and increase the financial strain on lower-income households, likely leading to a rise in distressed home sales,” they said.

Looking ahead, Oxford thinks it will take until 2035 for affordability to improve, meaning a first-time homebuyer with a downpayment will be able to purchase an average-price home.

However, a lot will have to happen to make that a reality.

Stillo and Davenport estimate that 4.2 million dwellings will need to be built by 2035 including “2.9 million to satisfy growth in households, 700,000 to make up for past supply shortfalls and ensure a normal vacancy rate, and 600,000 for suppressed household formation due to unaffordability.”

However, the pair don’t see Toronto and Vancouver returning to the affordable range due to their desirability.

“Our view is they will only get a temporary reprieve” from an increase in housing supply.

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McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here 

Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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