One of Canada’s largest banks just delivered bad news for real estate investors—it’s a bubble already deflating. BMO Capital Markets warns that home prices have been sliding for over three years, more closely resembling the US housing crash in 2007 than Ontario’s last correction. The bank expects a long, drawn-out recovery, cautioning it’s “next to impossible” to recreate the conditions that fueled the boom.
Canadian Real Estate Is A Bubble—It’s Been Popping For 3 Years
Canada’s housing bubble won’t pop—it already has, according to BMO. “While many are searching for bubbles in the equity market, one continues to undo itself as we speak—Canadian real estate,” explained BMO Senior Economist Robert Kavcic.
Bubbles are only recognized in hindsight—after a market has already corrected. A bubble implies prices were excessively inflated, and without a correction, it’s arguable that an asset class was simply undervalued. That defence once applied to Canadian real estate, but not anymore.
“Home prices in Canada, and Ontario more specifically, are still slumping after peaking in early 2022. Interestingly, the current decline is tracking both the 1990s episode in Ontario and national US price trends after 2007. It’s a widely-held consensus that those two episodes were bubbles,” he explains, suggesting the current correction implies excessive exuberance.
Sharing a chart for historical context, he repeated a point BMO was criticized for making years ago: “We’ll reiterate, as we have from the start, that this cycle will be measured in years, not months or quarters…”
Canadian Real Estate Bubble Resembles US Housing Bubble In 2007
Source: BMO Capital Markets.
Most people are surprised by the above chart for two reasons. First, Ontario home prices have been falling for more than three years—since the start of 2022—despite record population growth that began in 2022 and peaked in 2023. Second, the trajectory looks strikingly similar to the US housing crash that kicked off in 2007. Even Canada’s state-owned mortgage insurer has recently argued that this time is different. It always is—until it isn’t.
A closer look reveals the more important takeaway—how long this cycle lasts. As Kavcic notes, Ontario’s trajectory now mirrors the US housing crash. If it continues this trajectory, it would take another 5 years to recover, versus the 8 years following Ontario’s historical trend. The American crash was sharper, but that helped restore affordability and balance the market faster.
It’s easy to dismiss this as an Ontario-only issue, but the province led the boom—and is likely leading the bust. Unless markets like Halifax somehow become more expensive than Toronto, the correction is likely to spread to further markets and strike right around the time they get Jordache jeans. The Atlantic Provinces demonstrating resilience can technically become more expensive than Ontario, but with Ontario representing 40% of Canada’s GDP and government employment being the driver there, it’s about as likely as a martian impregnating your neighbour.
Canadian Real Estate Bubble Formed By Perfect Storm, Next To Impossible To Repeat
The bank also pours cold water on the suggestions that returning the market to its glory days is as easy a lowering interest rates. BMO explains the boom was fueled by a rare mix of factors unlikely to align anytime soon: peak Millennial demand, record immigration, pandemic migration, excess liquidity, ultra-low rates, maxed-out valuations, and—most importantly—speculative market psychology.
“It’s next to impossible to repeat those conditions, and thus the bear market in housing staggers on until affordability and investment dynamics reset themselves,” warns Kavcic.