Canadians may have to wait years for next housing boom

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Home prices soared during the pandemic housing boom, but it could be another four years before they return to those levels, say economists.

“While resale prices have found a floor across most markets, it’s still a long way back to the 2022 highs — as we’ve often said, think years not months,” Robert Kavcic, a senior economist with BMO Capital Markets, wrote in a recent report.

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The aggregate price of a home in Canada rose 3.8 per cent year over year to $819,600 in the fourth quarter of 2024, according to the Royal LePage House Price Survey out today.

The real estate company expects prices to rise another 6 per cent by the end of this year as further Bank of Canada interest rate cuts and new mortgage rules that make home-buying more affordable bolster the market.

BMO forecasts more modest gains with the national benchmark home price rising 4 per cent and sales increasing 12 per cent.

“Activity and prices have recently improved alongside Bank of Canada rate cuts, and that moderate upward momentum should continue through 2025 — but we don’t expect another exuberant takeoff,” said Kavcic.

BMO forecasts that even with a stable economy, steady wage growth and neutral interest rates, home prices won’t return to 2022 levels until about 2029.

A seven-year gap between peaks is in line with some of the longer price corrections in the past, as this BMO chart shows, though not as long as the bear market of the 1990s.

The reason for the lengthy recovery is secular forces have changed since the boom days, he said.

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Coming out of the pandemic a number of “bullish forces” peaked in the housing market.  Just as millennials were entering their home-buying years, demand was further stoked by an immigration boom — and interest rates reached historic lows.

“Suffice it to say that this was an extraordinarily bullish trio that won’t be repeated,” said Kavcic.

Now with millennials’ housing demand cresting, immigration has been curtailed by the federal government. And borrowing rates?

Kavcic questions whether mortgage rates have that much further to fall. The bulk of Bank of Canada rate cuts are behind us and the easing cycle has already been priced in to 3- and 5-year fixed mortgage rates, now in the low-to-mid-4 per cent range, he said.

“Suffice it to say that, barring a major disruption on the macroeconomic front (e.g., a real risk of significant tariffs), mortgage rates of around 4 per cent should be the norm for some time,” he said.

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Donald Trump recently claimed a trade deficit with Canada proves the United States is subsidizing its northern neighbour and threatened to use “economic force” to make the country the 51st state.

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Yet a look at today’s chart shows that entire deficit stems from oil and gas imports. If you exclude that America has a trade surplus with Canada of $58 billion, $30 billion of which comes from services, said National Bank of Canada economist Stéfane Marion.

• Industry Minister François-Philippe Champagne appears at Canadian Club Toronto to speak on Canada’s future
• Today’s Data: United States producer price index, NFIB small business optimism

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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. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

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

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