Canadian Real Estate Faces Setbacks and Opportunities Amid Market Shifts
Adrian C. Spitters, CFP?
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Canadian Real Estate Faces Deepening Crisis
The Canadian real estate market is experiencing a sustained decline with no clear signs of recovery. Data from the Canadian Real Estate Association (CREA) reveals that despite a rise in sales in December, prices fell by 0.2 percent, doubling the previous month’s drop. This seemingly small decrease has erased two years of gains, exposing critical structural weaknesses in the market.
Severe Price Erosion and Momentum Loss
Prices have dropped by 17.2 percent since their 2022 peak, representing an average decline of $146,400. This ongoing depreciation is not a temporary setback but part of a broader collapse in market momentum. Peaks and troughs have become increasingly shallow, indicating a prolonged slump. As interest rates remain high and economic uncertainty mounts, there is little evidence to suggest that prices will stabilize or recover anytime soon.
Sales Activity Masks Deeper Problems
The slight increase in sales volume has created a false sense of normalization, but the reality is far more grim. The disconnect between rising sales and falling prices signals a critical imbalance between supply and demand. Elevated mortgage rates and changing immigration policies are suppressing demand to dangerous levels while an overhang of unsold inventory looms ominously over the market.
Vanishing Optimism and Rate Pressure
Early 2024 optimism has evaporated as both buyers and sellers face the harsh reality of persistently high mortgage rates. Rising bond yields have crushed hopes for interest rate cuts, pushing financing costs even higher. Buyers are increasingly priced out of the market, while sellers find themselves unable to secure offers anywhere near their expected valuations.
Economists predict that relief is unlikely in the short term. Sellers who are holding out for a spring rebound are setting themselves up for disappointment. Without a dramatic surge in demand, prices could continue their downward spiral, leaving many buyers and sellers in financial limbo.
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Interest Rates and Immigration Weigh Heavily on Market
High interest rates continue to choke the market, as potential buyers are either unable or unwilling to take on costly mortgages. Bond market pressures have solidified long-term yield increases, ensuring that fixed mortgage rates remain elevated for the foreseeable future.
Shifting immigration policies further exacerbates the situation. The Government of Canada has announced plans to slow population growth through stricter immigration controls, undermining a key driver of housing demand. Without a steady influx of new buyers, the already fragile demand base is weakening, leaving the market vulnerable to further price erosion.
Wave of Cancelled Listings Signals Desperation
In December, approximately 20 percent of property listings were cancelled before a sale could be completed. This abnormally high rate of withdrawal suggests widespread panic among sellers. Many are retreating from the market, hoping to relist in the spring, but this strategy is fraught with risk. If mortgage rates remain high or rise further, a flood of unsold properties could saturate the market, triggering another sharp decline in prices.
The ongoing churn of withdrawn and re-listed properties is also distorting market data. Artificially inflated inventory levels are masking the full extent of the demand collapse, further clouding an already bleak outlook.
Regional Crises Expose Vulnerabilities
Across Canada, real estate markets are crumbling at varying rates. Toronto, Calgary, and Sudbury have experienced significant price declines, while minor gains in cities like Saint John and Moncton are unlikely to offset broader national trends. Over the past year, even resilient markets such as Kitchener-Waterloo and Ottawa have seen prices plummet by 1.4 percent.
These regional disparities underscore a deepening crisis that cannot be remedied by isolated improvements. Without coordinated economic and policy interventions, the divergence in regional performance will likely worsen, further destabilizing the national market.
Policy and Economic Pressures Are Unrelenting
The Canada Mortgage and Housing Corporation (CMHC) reported a 2 percent increase in housing starts for 2024, but this has done little to inspire confidence. Per-capita economic growth remains weak, and rising global bond yields threaten to counteract any potential gains from increased construction. Economists caution that even if the Bank of Canada lowers interest rates, the impact may be limited by external pressures beyond its control.
Market Dynamics and Institutional Opportunities
The current downturn presents a window of opportunity for investors with access to capital and operational expertise. Many properties with temporary performance challenges are trading at discounted valuations, creating favourable conditions for long-term investments. Institutional investors and private real estate funds can leverage their resources to acquire these assets and implement strategic upgrades that unlock their full value.
With reduced competition in certain submarkets, these investors are positioned to build premium portfolios at attractive entry points. As market fundamentals gradually recover, these properties have the potential for substantial appreciation.
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Strategic Approach is Key
In this complex environment, buyers, sellers, and investors must adopt tailored strategies to navigate the headwinds. For buyers, saving for a larger down payment or exploring alternative investments, such as private real estate investment trusts (REITs), may offer more stability than rushing into homeownership. Sellers may need to reassess their expectations and consider whether waiting for a price rebound is worth the risks.
Investors, particularly those focused on multifamily rental properties, can benefit from the increased demand for rental units driven by demographic shifts. Private real estate funds provide a hands-off way to participate in this market, offering both income distributions and capital appreciation over time.
The road ahead will require vigilance and adaptability. Monitoring regional trends, interest rates, and policy changes will be crucial for making informed decisions. Those who move decisively in today’s market have the opportunity to strengthen their financial positions for the long term.
Investment Portfolio Strategy
Diversification is essential in today’s market. Multifamily properties are appealing for their stability and ability to benefit from rising rental demand. Private real estate investment trusts and managed funds offer investors a streamlined way to participate in these markets.
An example is the Equiton Apartment Fund, which manages more than 2,700 rental units. This fund provides monthly income distributions and growth potential and is eligible for registered accounts like RRSPs, TFSAs, and RRIFs.
Those who adapt to shifting market conditions can position themselves for long-term success. By understanding today’s opportunities and selecting the right investment vehicles, investors can build portfolios designed for stability and growth.
Ready to explore how private real estate can enhance your portfolio? Contact me at [email protected] or schedule a consultation through my Calendly Link to discuss building a strategy tailored to your financial goals.
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Disclaimer
The information provided is for educational purposes only. It does not constitute financial, investment, legal, real estate, estate planning, wealth planning, financial planning, tax planning, insurance, or any other financial-related advice. It should not be viewed as a recommendation to buy, sell, or hold any financial products or assets. All investments, including stocks, bonds, private equity, private real estate, alternative assets, and precious metals, carry inherent risks, including loss of principal. Markets are unpredictable, and past performance does not guarantee future results. Diversification may reduce risk but does not ensure protection against loss. Real estate and precious metals are subject to market volatility, economic conditions, and illiquidity. Alternative investments, such as private equity, private real estate, and private debt, often involve complex legal structures, longer time horizons, and higher risk, requiring careful consideration and professional advice. Insurance, estate planning, wealth planning, real estate, and tax planning decisions, as well as any financial strategies, must be tailored to the unique circumstances, goals, and risk tolerance of each individual. Tax and legal implications vary by person and jurisdiction, and changes in laws can affect outcomes. It is crucial to consult with licensed financial, legal, tax, insurance, real estate, and mortgage professionals before making decisions. Forward-looking predictions are the opinion of the author and do not constitute financial advice. By using this information, you acknowledge it is general in nature and not a substitute for personalized advice, and you agree that the authors and affiliated entities are not liable for any financial losses or consequences from reliance on the content provided.
References
1.?????? Canadian Real Estate Association (CREA)
2.?????? National Bank of Canada (NBF) Reports
3.?????? Statistics Canada – New Housing Price Index
4.?????? Canada Mortgage and Housing Corporation (CMHC)
7.?????? Housing Prices Slide In December
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