How To Tell If Canada’s Housing Market Is Crashing

When Canada’s real estate market screeches to an unexpected halt, it’s fair to wonder if a housing crash is on its way.

But full-on market crashes are rare. When home sales and prices fall after an intense period of growth, a correction — a return to whatever “normal” means for Canadian housing — may be the more likely explanation.

Let’s explore the difference between housing crashes and corrections.

Recent housing crashes in North America

Before diving into crashes and corrections in general, a little historical perspective will be useful.

The two most recent crashes to impact North American housing markets were the 2007-2013 downturn that impacted the U.S., and the crash that brought down Canadian housing values in the early 1990s.

America’s housing crash during the Global Financial Crisis saw the country’s median home price fall by 29% between July 2006 and January 2009. During that period, the housing market is estimated to have shed more than $4.5 trillion in value.

Canada’s last housing crash, which lasted roughly from 1989 to 1995, wasn’t as catastrophic, but it hit certain markets especially hard. By August 1993, the average home price in Toronto, for example, had dropped by 28% from its April 1989 peak, bottoming out at $189,000.

What would a Canadian housing crash look like?

There’s no technical definition of a housing crash, but we can see that they have at least two common outcomes: severely decreased home prices and years-long recoveries.

To get a full sense of what a Canadian housing crash might look like, we have to consider the causes. Three factors that fed into Canada and the U.S.’s most recent crashes were:

A Canadian housing crash would also require a change in home buying sentiment, where buyers avoid the market because of the perceived financial risk rather than prioritizing home ownership. A shift like that would likely contribute to home prices staying lower for longer.

What is a housing market correction?

The difference between a housing crash and a housing correction comes down to severity, says Phil Soper, president of national real estate brokerage Royal LePage

“In America, the [last] real estate crash lasted about six years. A market correction should take somewhere between six and 18 months,” Soper says, adding that prices typically fall by double-digit percentages during a crash and by single digit percentages in a correction.

Housing corrections also differ from crashes in terms of their causes. Corrections tend to be the result of changes to the housing market: sharp increases in mortgage interest rates, for example, or new regulations that reduce buying power, like the mortgage stress test, have both kicked-off housing corrections.

Unlike housing crashes, corrections don’t require widespread job losses. Canada’s unemployment rate, for example, was at a record low when the market entered a cooling period in mid-2022.

3 reasons why Canada should avoid a housing crash

First, Canada’s economy is diversified and generally strong — and supported by government stimulus when it isn’t, like during the COVID-19 pandemic. These characteristics help prevent mass job losses among Canadian homeowners in times of economic stress. If people can afford to pay their mortgages, they shouldn’t need to sell their homes for far less than they paid for them, which is typical behaviour in a housing crash.

Second, Canada’s mortgage lenders are careful when evaluating borrowers. Their strict lending standards help prevent the delinquencies and foreclosures that feed a housing crash. There’s also the mortgage stress test and mandatory mortgage default insurance for buyers putting down less than 20%. The former is designed to give borrowers breathing room in case mortgage rates rise during their mortgage terms; the latter ensures lenders get paid so they can keep financing new buyers.

Third, strong population growth should continue supporting housing demand. Canada’s population grew by 1.8 million people between 2016 and 2021, faster than any other G7 nation. The government’s ambitious immigration targets added another 1.3 million new arrivals in 2024.

Population growth should slow in 2025 and 2026, but long-term demand for housing shouldn't fall off among end-use buyers or investors. Steady demand generally prevents sales and prices from bottoming out for an extended period of time.