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Canadian Home Prices Dip 2-3% Year-On-Year, Marking First Decline Since 2022

  //house-home.news-articles.net/content/2025/12/1 .. ar-on-year-marking-first-decline-since-2022.html
  Published in House and Home on Monday, December 15th 2025 at 5:32 GMT by Bloomberg L.P.

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Canadian Home Prices Dip as Momentum Stalls Heading to Year‑End

The Canadian housing market, which has enjoyed a period of unprecedented growth for the past several years, is now showing signs of a slowdown that could push home values lower by the end of the year. Bloomberg’s recent piece, “Canadian home prices dip as momentum stalls heading to year‑end,” tracks the latest data, expert commentary, and the economic forces that are reshaping the real‑estate landscape across the country.

1. The Current State of the Market

• Price Declines Across the Board
  The article reports a roughly 2‑3 % year‑on‑year decline in average home prices for the first time since early 2022. While the dip is modest, it marks a departure from the 8‑10 % gains seen in 2021 and 2022.

• Regional Variations
  The slowdown is uneven. Vancouver and Toronto, the country’s two largest markets, are the most affected, each seeing price drops of about 3‑4 %. Smaller markets such as Ottawa, Halifax, and Calgary are experiencing milder declines—often under 1 %.

• New‑Construction and Inventory
  Builders have ramped up supply in the past year, with the construction of over 20 000 new homes, yet inventory levels remain low. The article notes that the average number of days a home sits on the market has increased from 35 days in early 2024 to 50 days as of the most recent data release.

2. Drivers of the Cooling Trend

a) Monetary Policy and Mortgage Rates

• Higher Policy Rates
  The Bank of Canada’s policy rate rose to 4.75 % by September, a record for the last decade. Mortgage lenders have largely followed suit, pushing the average rate for new mortgages to just under 5 %.
• Mortgage Stress Test
  The federal government’s stress test—requiring borrowers to prove they can afford a 5 % interest rate—has become more stringent. Lenders are now tightening underwriting standards, leading to a noticeable reduction in approved mortgage applications.

b) Housing‑Affordability Concerns

• Income‑to‑Price Ratios
  In major metros, the ratio of median income to median home price has worsened, making first‑time buyers and even seasoned investors wary.
• Government Policy
  The federal and provincial governments have introduced measures such as the “home‑buyer’s tax credit” and tighter regulations on “non‑qualified” mortgages, all of which are contributing to reduced demand.

c) Supply Constraints and Construction Costs

• Labor Shortages and Rising Materials
  Despite the surge in construction, builders face a labor shortage, and the cost of lumber and steel has increased, squeezing profit margins.
• Zoning and Planning Delays
  Local municipalities continue to enforce stringent zoning laws, which prolong the approval process for new developments, limiting the pace at which supply can meet demand.

d) Market Sentiment and External Factors

• International Investment Flows
  The article highlights a decline in foreign investment in Canadian real estate, partly due to stricter cross‑border capital controls and a stronger Canadian dollar.
• Economic Outlook
  Weakening global growth, potential recession risks, and rising inflation all dampen investor confidence in the housing market.

3. Impact on Different Stakeholders

Homeowners

• Equity Loss
  Many homeowners who purchased during the peak of the boom face negative equity. The article cites an average decline of 1.8 % in property values, which could erode the ability of homeowners to refinance or tap into equity for renovations or other needs.

Builders and Developers

• Cash‑Flow Pressure
  With higher construction costs and lower selling prices, developers are experiencing tighter margins. The piece discusses how some builders are shifting to more affordable housing models to capture a broader customer base.

Renter’s Market

• Rising Rents
  As housing supply doesn’t immediately respond to price changes, rental rates have continued to climb, especially in high‑demand cities. The article notes a 4‑5 % annual increase in rental prices in Toronto and Vancouver.

Financial Institutions

• Portfolio Adjustments
  Banks are adjusting their risk exposure by tightening lending criteria and increasing reserves for potential default losses. The article includes commentary from a senior analyst at a major Canadian bank who warns that an abrupt downturn could ripple into the banking sector.

4. Expert Forecasts and Outlook

• Short‑Term View
  Real‑estate analysts predict a further 1‑2 % decline over the next six months. The article cites a forecast model that incorporates current interest rates, mortgage approval trends, and projected construction starts.

• Long‑Term Prospects
  Despite the downturn, experts maintain that the market will stabilize by early 2026. Supply constraints, especially in the major metros, will likely prevent a prolonged price slump.

• Policy Recommendations
  Several economists suggest that targeted fiscal stimulus, such as a “housing‑affordability grant” for first‑time buyers, could mitigate the negative momentum. Additionally, streamlining building approvals and offering incentives for affordable housing projects are proposed as ways to balance supply and demand.

5. Broader Economic Implications

The article frames the Canadian housing market’s slowdown within a broader macroeconomic context:

• GDP Growth
  Housing construction contributes significantly to GDP. A sustained decline could slow overall growth, especially in regions where the sector is a major employer.

• Consumer Spending
  With homeowners less able to refinance or invest, consumer spending may contract, affecting sectors like home improvement and automotive sales.

• Inflation Dynamics
  Falling housing prices may temper inflationary pressures, but rising construction costs could offset some of those gains.

• International Investment
  A cooling Canadian real‑estate market could make the country less attractive to foreign investors, potentially impacting the exchange rate and capital flows.

6. Key Takeaway

The Bloomberg article paints a nuanced picture of a Canadian housing market at a crossroads. While prices are retreating from the highs of 2021‑22, the slowdown is relatively modest and uneven across regions. Interest rates, tightening mortgage policies, and supply constraints are the primary catalysts. However, the market’s underlying fundamentals—strong population growth, limited land supply in key metros, and continued demand for urban living—suggest that prices will likely rebound or at least stabilize over the next couple of years.

For anyone involved in buying, selling, investing, or developing real estate in Canada, understanding these dynamics is crucial. The article underscores that the path forward will be shaped by how effectively policymakers, lenders, and builders adapt to the new reality of a more cautious, yet still resilient, housing market.