Canada’s Housing “Bubble” Worsens as Prices Slide and Inventory Rises

Market Strains Show No Signs of Easing

Canada’s real estate correction appears to be accelerating, with fresh data showing home inventory at record highs and prices falling further from peak levels. According to market analysts, Toronto has seen a 24% decline in home prices since 2022, underscoring just how sharply demand has cooled.

This downturn is being compounded by a rise in unemployment and excess supply across housing, labor, and exports. Together, these factors are putting sustained downward pressure on the broader economy.

National Bank Flags Mounting Slack

The National Bank of Canada has warned that the country is experiencing growing economic slack—a situation where supply of goods and labor exceeds demand. The concern is that this slack will drag down economic growth, making it difficult for policymakers to guide the economy into a “soft landing.”

Instead, the bank suggests that a harder correction may now be on the horizon, especially as households grapple with rising mortgage costs and lenders tighten credit availability.

Toronto at the Epicenter

The Greater Toronto Area (GTA) remains the focal point of the correction.

• Prices: Down 24% from their 2022 highs.
• Inventory: At record levels, with many unsold listings lingering on the market.
• Demand: Buyers remain cautious, even with expectations that the Bank of Canada could cut its benchmark rate at the September 17 policy meeting.

Industry experts say the imbalance between supply and demand is unlikely to correct quickly. Even lower interest rates may not be enough to revive sales in the short term if job insecurity continues to climb.

Why It Matters for Mortgages

• Affordability Pressures Remain
  While lower home prices sound positive, high carrying costs and stricter lending standards mean many Canadians are still shut out of ownership.
• Risk for Lenders
  Falling collateral values and rising unemployment raise risks of defaults, forcing mortgage lenders to remain cautious.
• Opportunities for Buyers
  For well-qualified borrowers with stable income, this environment could present an opportunity to negotiate lower prices—especially if rate cuts materialize later this month.

The Bigger Picture

Canada’s housing market has long been considered one of the most stretched globally, and this latest phase may represent the long-anticipated unwinding. What happens next depends on whether government supply initiatives like Build Canada Homes and central bank policy easing can stabilize confidence—or whether the market correction deepens further.

The Canadian housing “bubble” narrative is gaining traction as prices fall, inventory builds, and unemployment rises. For mortgage seekers, the next few months will be crucial in determining whether this correction creates new opportunities or exposes deeper vulnerabilities in the housing-finance system.