In its economic and housing outlook released today, Oxford Economics is forecasting a mild recession by the end of the year will lead to an additional 10% decline in average house prices by early next year.

That would lead to a total peak-to-trough decline in prices since February 2022 of between 20% and 25%, Oxford said in its forecast that were included in Mortgage Professionals Canada’s latest Semi-Annual State of the Housing Market Report.

“A weaker economy, higher mortgage rates, tighter credit conditions, record unaffordability, and government policies aimed at curbing speculation and banning foreign buyers are all factors that will contribute to a continued decline,” the report states.

Oxford believes Canada’s economy will enter a recession by the end of the year, with total GDP growth of just 1% in 2023 before contracting by 0.2% in 2024. However, it then expects “robust” growth of 3% in 2025 and 3.3% in 2026.

Regional housing outlooks

While real estate markets across the country are currently in the midst of a correction, the degree to which home prices will ultimately fall varies depending on the region.

Ontario has been the hardest hit of all regions, with the total peak-to-trough price decline expected to reach -20% by the end of this year and just over -25% by 2024. British Columbia and Quebec are also expected to see prices down from their peaks by -9.5% and -7.9%, respectively, by the end of this year.

Home prices have been most resilient in the Prairies and Atlantic Canada, with peak-to-trough declines of just -0.9% and -0.8% in Alberta and Saskatchewan, respectively, and price gains expected in Prince Edward Island (+4%) and Newfoundland & Labrador (+2.8%).

BMO senior economist Robert Kavcic commented on these regional pockets of housing strength in a recent research note.

“What do these regions have in common?” he wrote. “Relative affordability and net provincial migration inflows that are supplementing international immigration. Translation: People are moving there because they can live affordably.”

Oxford expects Calgary to be the only major urban centre in Canada that won’t experience a correction in its Housing Price Index as measured by the Canadian Real Estate Association.

Additional highlights

Here are some of the other key takeaways from the outlook:

• Mortgage arrears: Thanks to most banks allowing extended amortizations on variable-rate mortgage products, mortgage arrears are only expected to rise modestly to 0.23% by mid-2023 from 0.17% at the end of 2023.
• Mortgage credit growth: A protracted recovery is expected, with mortgage credit growth falling by about 2% through the first half of 2024 before picking up to 4.8% by the end of 2026 and be sustained until the end of the decade.
• Housing completions: Expected to fall by 21% in 2024. That would follow an expected decline of 2.4% in 2023.
• Loan-to-income ratio: Oxford notes that there’s been a sharp decrease in the share of buyers with a loan-to-income above 450%.

Canadian Mortgage Trends