There’s not going to be a housing crash

A recent report by TD Bank suggests a gradual adjustment, rather than a drop in prices, that matches, more closely, the historical appreciation of real estate.



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The latest phrase in use to predict the future of Canada’s over-inflated housing market is: “A gradual, modest downward adjustment.”

That’s a far cry from the headlines that promised nothing short of a drastic housing price drop:

  • Be Very Afraid of the Canadian Housing Bubble (, April 16, 2012)
  • Merrill Lynch Warns of Canada Housing Bubble (, Dec. 20, 2011)
  • Is Canada’s Housing Rebound Forming a Bubble (, Nov. 24, 2009)
  • Home Prices Could Dive If Rates Rise (Globe and Mail, Feb. 2, 2011)
  • Our Unstoppable Housing Market May Have Met It’s Match (National Post, March 28, 2010)
  • Housing Prices Due to Fall, says think-tank (The Star, Aug. 31, 2010)
  • Canada Bank CEOs Warn On Housing, Not Europe (Reuters Canada, Jan. 10, 2012)

…and the list goes on.

The more sober call for a “gradual adjustment” comes from a recent TD Bank report. The report, released this week, suggests that the real rate of return for housing prices, post 2015, will be about 3.5%. This shift from the average 5.4% return we’ve seen year after year for the last decade is due, in part, to a number of macroeconomic fundamentals, such as a slow rise in average incomes, a close to stagnant national economic growth rate, Canada’s aging population and immigration figures.

In short: we are returning to pre-1998 housing valuations, when nominal rates of return on real estate matched inflation at around 2%. (For those that keep track, there was a surge in home prices between 1982 and 1989, and again between 1972 and 1977).

The silver lining?

For the last few years economists, financial analysts, and bloggers have warned us about the forthcoming housing crash. Don’t get me wrong, there’s still a potential fall out when this nation of debtors finally comes face to face with the impact of rising rates, but the silver lining really is that housing prices in Canada are flattening out, and returning to stable levels.

While sellers may be disappointed, buyers won’t be (nor should sellers, since most of us have to buy when we sell). This is particularly true for the next couple of years, as housing prices start to gradually drop in value.

As Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California-Berkeley, points out: “Prices are back to [increasing] 1% to 2% more than inflation over the next 10 years,” right in line with long-term appreciation averages. According to data compiled by Yale University professor Robert Shiller, U.S. home prices increased, on average, by 0.5% per year from 1890 to 2008. A 3.5% real rate of return over the next 10 years doesn’t look so bad.

12 comments on “There’s not going to be a housing crash

  1. Whether a plane crashes in a fireball or a boat slowly sinks, the results are often the same.

    I generally like TD, but do you seriously think they *want* people to believe a crash might come? That's certainly not in the best interest of a business engaged in selling mortgages. They're absolute best bet is to tell people to, "Keep calm and carry on".

    Tell someone in Vancouver or the GTA that the home they paid $900,000 for two years ago will returning to the "pre-1998 housing valuation". Then watch the blood drain from their face. But please, be nice and remind them that it's not a crash but a minor correction. "Crash" is such an ugly word after all.


  2. The author is a real estate agent? Really?! And I bothered to write a actually contribute an opinion here? It all makes sense now….

    "About RK . Romana King is a Toronto-based writer, editor and blogger for business and lifestyle publications and a licensed realtor with Century 21."


  3. A house and especially condo has many on going expenses like condo fees,maintenance,utilities,repairs,property taxes,lawyer fees,real estate commissions and fees,H.S.T. on all these fees and expenses,land transfer taxes (Toronto,Ontario),insurance,mortgage insurance,house or condo insurance and other financial fees like breaking a mortgage,mortgage fees, capital gains taxes if a rental property or second residence,accounting and tax fees etc.

    If TD 2% annual increases for the next 10 years than in a way it is a slow grinding loss. I can buy provincial strip bonds with my TFSA say $25,500 if I never contributed and say for an example $25,500 in RRSP's if I have contribution room. If I buy the 18 year provincial strips at today's bond yield/interest rate of 3.80% the $51,000 of TFSA+RRSP would be worth $99,798.16 in 18 years. If I looked at the 10 year total interest accrued it would be 45.20% vs.21.90% real estate price increased by TD report.Remember TFSA's and RRSP's don't have all these costs,expenses,fees,property taxes like housing does.Also, most of these costs,expenses,fees,property taxes increase every year as well.The loss is worse than 23.30% when you do the real calculations and take annual increases in costs,fees,expenses,property taxes into account.

    This is a a loss of 23.30% over 10 years. It is not a crash but if you told someone that you lost 23.30% in ten years they would say that is quite a bit of money lost on my investment.


    • Especially a highly leveraged investment. Nothing worse than losing money on borrowed money.


  4. What makes you an authority to specify that a housing crash isn't coming? This is pure speculation on your part. TD has a vested interest. Where is your critical thinking? The fundamentals don't line up for even modest appreciation going forward. Incomes are barely growing at the rate of inflation. The bond market determines the mortgage rates we get from our local banks.


  5. I feel extremely misled by the title of this article.

    You've sealed the deal. No moneysense magazine for me.


  6. "….but the silver lining really is that housing prices in Canada are flattening out"

    Yes, prices are certainly flattening out. House bubbles in USA, Ireland Spain and Japan all experienced a flattening of prices before the downwards spiral. So are we in a soft landing or in the flattening phase preceding a big drop? I don't know, and Romana King doesn't either, in spite of her 4 week realtor course. However, Economist magazine says Canada's real estate is far overvalued, and backs up that assertion with a convincing argument.

    House prices don't adjust up and down quickly like stocks, because houses are a much less liquid asset. Vancouver's real estate association figures for Feb 2013 show average house price declines of 5.6%, since May 2012. That's a quick drop for real estate.

    Realtors (Ramona King is one) are sales people, period.
    Would you ask a Honda dealer if now is a good time to buy a car?


  7. If only we all were allowed to write puff pieces about our own industries and pass them off as news. The RE industry has gotten away with too much marketing on the mainstream media.


  8. House prices are set by location , price of materials , cost of labor , supply and demand , interest rates , taxes and the price of building lots . There is always a balance so when something goes up then something equally goes down . There is no housing bubble .


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