Canadian Real Estate Prices Won’t Recover Peak Until 2029

Canadian real estate prices have experienced significant fluctuations in recent years. After a 65% surge from 2020 to a peak in March 2022, prices declined by 19% over the following year and remain 17% below the peak as of last month. BMO Capital Markets predicts that home prices will not return to their 2022 highs until 2029.

Several factors contribute to this extended recovery period. While lower interest rates and easier access to credit are expected to boost demand, BMO does not anticipate a rapid return to previous price levels. Senior economist Robert Kavcic advises, "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."

Historically, Canadian real estate markets have taken years to recover from downturns. For instance, after the 1995 market decline in Vancouver, it took nearly nine years for prices to rebound. In Ontario, the early 1990s downturn led to a 15-year recovery period, with Toronto taking 22 years to return to its inflation-adjusted peak.

BMO identifies several reasons for the anticipated prolonged recovery. The demographic surge of Millennials entering prime home-buying age is waning, with the youngest now 34 years old. Additionally, international migration, which had been a significant driver of housing demand, has begun to slow. Interest rates are also unlikely to return to the historically low levels seen after the Great Recession.

While the current market shares similarities with the 1990s housing bubble, BMO does not foresee a repeat of the deep and prolonged downturn experienced during that era. However, the bank cautions that the combination of stretched housing valuations, investor-driven narratives, and shifting demographic trends mirrors past conditions.

In summary, despite some positive developments, Canadian real estate prices are not expected to reach their previous peaks until 2029. Buyers and investors should prepare for a gradual recovery influenced by demographic shifts, migration trends, and interest rate changes.