ADAM MILLS REALTY

A Brief History of Canada’s Housing Market Crashes

Over the last several months, we’ve been bombarded with the idea of an imminent housing market crash. Media outlets are constantly talking about the looming recession and housing bubbles across Canada, estimating when everything will come crashing down around us. This constant coverage of the Canadian economy and the housing market has caused extreme anxiety in homeowners across the country.

Many reports reference other tough economic times Canada’s experienced over the years, comparing today’s market to devastating downturns like the crash of 2008. If you’re not familiar with Canada’s housing market crash history, these comparisons can leave you even more confused and worried.

We’ve created a brief synopsis of significant housing crashes throughout Canada’s history to help you understand the economic conditions that lead to a crash.

Read on to learn about three significant crashes Canada has experienced in the last 20 years.

  1. The early 1990s – Burst Bubbles

    Home prices fell significantly between 1989 and 1996 due to various economic factors. In the Greater Toronto Area, prices fell by 34% between 1989 & 1991 and continued to decline throughout the 90s.

    What happened?

    In the 1970s & 1980s, inflation rates reached an all-time high, putting pressure on the housing market. People were worried about rising inflation, so they invested in housing to hedge against future inflation. This led to buying in anticipation of rising costs, regardless of whether they had the cash. Unfortunately, financial institutions had little regulatory oversight at the time, allowing lenders to grant funding to just about anybody.

    As a result of inflation, the Bank of Canada raised interest rates to 13%. (And, no, that’s not a typo). 

    With increased interest rates, Canada’s GDP growth fell, and unemployment hit 11%. As people felt less confident in their financial futures, sales slowed drastically, and prices dropped with it. Housing inventory was at a low, and prices remained flat throughout the rest of the decade.

  2. The 2008 Financial Crisis

    The 2008 stock market crash devastated the U.S. economy and changed the world’s economic landscape. Fortunately, the Bank of Canada’s regulations & policies at the time saved the Canadian economy from the worst of the fallout. 

    Unfortunately, our housing market took quite the hit.

    Across Canada, new housing starts dropped, and sales of existing homes fell by 40% from their peak. The national resale price for a house dropped by 9.5%, and new home prices fell by 3.5%.

    What prevented Canada from experiencing the same devastation the U.S. did during this period was stricter lending regulations and compulsory mortgage insurance for some buyers.

  3. 2017 Ontario Housing Downturn

    This time period in Canadian real estate is referenced far less often than the crashes in the 1990s and 2008 but is still relevant to today’s market discussions.

    In 2017, we saw extreme growth in some major Ontario markets as the economy continued to recover from the 2008 crash. Prices in some major markets reached a year-over-year increase of over 30%.

    In response to this outrageous growth, the Provincial Government implemented the “Fair Housing Plan,” which included measures like the 15% foreign home buyers tax and increased rent control regulations to slow price increases.

    Home sales dropped by 15%, and prices fell by 20% in some major markets over the year.

    This downturn was short-lived due to the pandemic’s effects on the housing market, a situation the government could not have foreseen or planned for.

Conclusion

While there’s no way to predict with certainty that a crash will or will not happen, we can say that history shows us that the economy and real estate markets always come back. As with any investment, real estate will always have high and low points. We’ve seen throughout Canadian history that very specific economic conditions need to be present to create a crash. While some of these conditions may currently be present, that doesn’t mean we are doomed.

Lending regulations are relatively strict in 2022, making it difficult to be approved for a loan amount you cannot carry. If you’re feeling unsure and anxious about your financial situation, speak to your financial advisor or mortgage lender about your concerns. 

To stay up to date on Ottawa real estate trends, statistics and forecasts, follow us on Instagram @adammillsrealty. We are always posting content to keep our followers informed and educated!