Housing Market Insight — Ontario

The behaviour of home prices has a very strong influence on financial and economic stability. A strong reminder of this: the recent recession, which began in the U.S. in 2008 before spreading to other countries.

In recent years, home prices in some major centres in Ontario have grown at rates well above historical averages. This has led to overvaluation1, where prices exceed what fundamental indicators like population, income and interest rates would support.

About 40%2 of all Ontario household assets are tied up in households’ principal residence. In addition, Ontario households have been borrowing against their home equity. This is clear in home equity line of credit (HELOC) balances, which have been rising over the past few years. A significant downturn in prices could therefore have severe negative effects on the broader Ontario economy and financial system.

In this CMHC Housing Market Insight, we take a close look at Ontario home prices. More specifically, we try to answer this question: Are Ontario home prices going through a correction, or a bust phase? For the purposes of the report, a bust phase is defined as a more serious correction:

  • that lasts at least 4 quarters
  • during which there is a minimum cumulative 10% drop in inflation-adjusted prices

In this report, we look at both fundamental and technical indicators to come to our conclusion. Fundamental indicators include:

  • the stage of the economic cycle
  • growth in incomes
  • population
  • interest rates
  • balance between demand and supply

Technical indicators, meanwhile, are tools that help forecast future price movements by examining only past price movements.

1CMHC Housing Market Assessment, 2018 Q1
2Statistics Canada’s Survey of Financial Security, 2016

Date Published: June 14, 2018