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One of the world’s bubbliest real estate housing markets is tilting from sellers to buyers with dizzying speed. Canadian home prices fell for the first time in two years as a rapid rise in interest rates looks set to threaten one of the world’s hottest housing markets.  What does this mean for the US market?  Will we see the same changes Canada is currently seeing?  When?

What was in the recent Canadian housing data?


The sharp jump in Canadian home prices since the pandemic, like the US they’re up 24% over the past 12 months, was driven by emergency-low rates that helped the economy through the Covid-19 crisis. But now rate increases have left the nation’s housing market looking increasingly vulnerable.

In the housing market, last month’s price declines were heaviest in the smaller communities around Toronto that saw some of the steepest gains through the pandemic as remote work allowed buyers to look further afield. The suburbs of Oakville and Milton saw benchmark prices decline 5.6% in April from the month before, while prices in the city of London, Ontario, about a two hour drive from Toronto, declined 4%, the data show. 

The slowdown in sales activity, meanwhile, was broad-based, with 80% of local markets nationwide posting a monthly decline in transactions, the data shows.



Why look at Canada to understand the US market?

It is important to watch what is happening in comparable markets/countries. With the global interconnected nature of the economy, what happens in Canada or Europe can indicate what we will see in the US.   In this case Canada is a very similar market to the US where low rates quickly drove up prices and now with rising rates these prices are heading back to reality.  The price gains in Canada were like the US over the same period which should serve as a roadmap for where prices head in the US as we reach an inflection point.


Will we see a 2008 repeat?

I’m always asked if this recession will be like 2008 where housing prices plummet.  At this juncture I don’t foresee a 2008 repeat.  2008 was driven by loose underwriting and no down payment loans.  Underwriting today is substantially better than in 2008 which should cushion the market from a catastrophic drop in prices.  Furthermore, there is considerably more wall street money that is sitting on the sidelines waiting to invest in the single-family market for long term rentals which should further reduce a plunge in prices.

Real estate changes: 2023  Canadian style reset

Just about everyone agrees that the reason home prices have shot up 34% in the last two years is that there is a lot of demand for housing, but not enough supply coupled with rock bottom rates and tons of stimulus. But the U.S. may be at a crucial juncture, at which a lot of properties are coming onto the market just as demand slows, analysts say.

For example, real-estate brokerage Redfin Corp.’s seasonally adjusted measure of home buying demand, which tracks buyer inquiries, fell 8% in the week ended May 15 compared with a year earlier, the biggest drop since April 2020. About 18% of sellers cut their asking prices in the four weeks ended May 15, compared with 9.5% of sellers in the same period a year ago.  Furthermore sales of newly built homes tumbled 16% in April foreshadowing the pending slowdown.

This means best case prices will level off—and, depending on demographics, location, interest rates,  etc…, we are likely  in for a Canadian style reset.




The US is a bit behind Canada as the federal reserve has been a little slower to aggressively raise rates, but the current drop in prices in Canada is a warning for the US market.  As rates rise, the number of housing units coming online continues, and demographic trends reshape the real estate market look for real estate to respond in 2023.  We are already seeing the beginning of this with new home sales dropping and price cuts coming in many of the hottest markets.   Although, a 2008 crash isn’t currently in the cards, there will be increases in inventory while demand slows due to higher rates that will ultimately lead to price declines.

I wanted to give one quick warning, although I don’t see anyone predicting a 2008 rehash nor do I see this in the offing, in every economic cycle there are always surprises and it is next to impossible to predict what falls out of the woodwork so now is the time to ensure you are liquid for the next cycle so that you can ride through whatever happens.


Additional Reading/Resources

  1. https://time.com/6178366/house-prices-us/
  2. https://www.bloomberg.com/news/articles/2022-05-19/one-of-the-world-s-frothiest-housing-markets-turned-into-a-seller-s-headache-overnight
  3. https://www.bloomberg.com/news/articles/2022-05-16/canadian-home-prices-post-first-drop-in-two-years-on-rate-hikes
  4. https://www.wsj.com/articles/the-fed-searches-for-the-magic-number-to-cool-a-red-hot-u-s-housing-market-11653402996?mod=hp_lead_pos5
  5. https://www.bloomberg.com/news/articles/2022-05-24/housing-market-shows-cooling-signs-after-interest-rate-hike?srnd=premium
  6. https://www.cnbc.com/2022/05/24/sales-of-newly-built-homes-fall-16percent-in-april-as-prices-soar.html

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors MagazineThe Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.


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