Finance

Unlocking the Mystery: Why Housing Prices Soared and What Will Bring Them Back Down

2025-06-27

Author: Jacques

The Housing Market's Rollercoaster: What You Need to Know

Housing prices have skyrocketed in recent years, leaving many wondering what caused this surge and, perhaps more importantly, when we can expect relief. According to BMO’s senior economist Robert Kavcic, affordability is on the horizon again. His analysis shows that the Canada Mortgage and Housing Corporation (CMHC) is targeting pre-pandemic affordability levels as their new benchmark, a significant shift from the early 2000s previously used.

Kavcic argues that the dramatic escalation in housing prices isn't just about a lack of supply. Despite a 20% increase in housing completions since 2019, the types of homes being built don’t meet the needs of Canadian families. Meanwhile, two main demand drivers—unsustainably low real interest rates and an explosion in population growth—have stabilized. As these factors normalize, a return to pre-pandemic affordability seems not only feasible but likely.

The Road Ahead: What Does the Future Hold?

The path to affordability includes several key elements: stable home prices, rising incomes, a slight decrease in borrowing costs, and continued construction completion. With these factors working together, Canadians may soon find themselves in a more manageable housing market.

Big Picture: What the Experts Are Saying

In related news, Bank of America Securities recently held a virtual conference where over 700 institutional clients examined various commodity markets. The findings suggest a bearish outlook on oil prices, with many expecting Brent crude to hit $55/bbl before it sees $95/bbl. However, there’s a noted bullish sentiment for metals like copper and gold, which are predicted to outpace other sectors, particularly as geopolitical tensions and inflation remain high.

Financial Stability: A Positive Outlook

On the banking front, BMO analyst Sohrab Movahedi provided a reassuring update on balance sheet health. The Office of the Superintendent of Financial Institutions (OSFI) confirmed that the Domestic Stability Buffer will remain stable at 3.5%. This decision underscores that Canada’s major banks are well-capitalized and prepared to face the rising uncertainties in the market.

Movahedi maintains an 'outperform' rating on several leading banks, indicating an optimistic future despite current challenges.

In Conclusion: Change is Coming!

As the landscape of the housing market evolves, both policymakers and consumers are keenly watching for signs of change. With a mix of economic adjustments and proactive measures from institutions, the dream of affordable housing may soon become a reality for many Canadians.