Advertisement
Private equity has played a significant role in shaping Indi...
In today’s real estate landscape, fitness is often treated...
In this episode of Prop Personalities, we sit down with Hars...
Luxury real estate is one of the most talked-about segments ...
Welcome to Prop Personalities by Prop News Time - a podcast ...
Canada’s housing market downturn is affecting consumer spending even as financial markets continue to perform strongly. Falling home prices, higher mortgage rates, and global factors like rising oil prices have reduced household confidence and borrowing capacity. While overall household wealth has increased due to stock market gains, these benefits are largely limited to wealthier individuals. Economists note that housing plays a more direct role in spending behaviour, and the ongoing correction is weakening the broader economic recovery. Slower consumption growth is expected to impact GDP momentum in the coming period.
Canada’s prolonged housing market decline is beginning to impact household spending, even as the country’s stock market continues to generate significant wealth. Data from the Bank for International Settlements shows that Canada was the only G7 economy to record a drop in home prices in nominal terms over the past year. This trend has been driven by mortgage renewals at higher interest rates compared to pandemic-era lows, along with slower immigration growth, which has reduced housing demand. Advertisement
The housing slowdown comes at a time when the broader economy is already under pressure. Canada’s GDP grew by 1.7% in 2025, marking its weakest pace in five years. Efforts by Prime Minister Mark Carney to revive growth are also facing challenges from an ongoing trade conflict with the United States.
Despite the real estate downturn, household wealth has increased significantly. Net worth rose by over CAD 1 trillion in 2025 to reach CAD 18.6 trillion, largely supported by gains in financial markets. Canada’s resource-driven stock market recorded its strongest rise since 2009 and outperformed major US indices. However, these gains have been unevenly distributed, with wealthier households benefiting the most.
Economists highlight that rising financial asset values have not translated into higher consumer spending. Housing remains a more important driver of financial confidence for most households. David Rosenberg, chief economist at Rosenberg Research, stated that a decline in home values tends to have a deeper and more lasting impact on consumer sentiment compared to fluctuations in equity markets.
Savings behaviour reflects this cautious outlook. Canada’s household savings rate stood at 4.4% in the fourth quarter, down from 5.2% in the previous quarter but still relatively high compared to historical levels outside the pandemic period. A recent Angus Reid poll indicated that a majority of Canadians expect stronger action from the government to address the rising cost of living.
Home prices have declined by around 20% since their peak in February 2022. The situation has been further affected by geopolitical tensions in the Middle East, which have led to higher oil prices and increased borrowing costs. These factors have contributed to rising mortgage rates and prompted the Canadian Real Estate Association to lower its housing market outlook for 2026 and 2027.
The correction in housing is expected to have a measurable impact on consumption. Estimates from CIBC Capital Markets suggest that reduced spending linked to falling home prices could exceed CAD 5,000 per household. Economists Benjamin Tal and Katherine Judge noted that the negative wealth effect is weakening consumer sentiment and increasing financial stress, particularly in the mortgage segment. This has also led to higher delinquency risks and fewer refinancing opportunities.
Lower home values are also reducing access to credit. Financial tools such as home equity lines of credit are widely used in Canada for major expenses, including renovations and vehicle purchases. As property values decline, borrowing capacity reduces, limiting such spending.
While recent retail sales data indicates some resilience, analysts expect this trend to weaken due to rising fuel costs and continued pressure on household finances. The Bank of Canada has projected that consumption will contribute 0.7 percentage points to GDP growth in 2026, compared to 1.2 percentage points over the previous two years.
Homeownership remains high in Canada, with about two-thirds of households owning property, many of whom carry mortgages. In contrast, direct participation in stock markets remains below 50%, excluding retirement plans. Additionally, nearly 70% of financial assets are held by the top 20% of households, further limiting the broader impact of stock market gains.
Canada’s benchmark TSX index has risen by around 7% so far this year and reached a record high in March. It delivered a gain of 28.2% in 2025, significantly outperforming the S&P 500, which rose by 16.4%. The total market capitalisation of the TSX stands at approximately CAD 4.9 trillion.
The rise in financial assets has pushed the ratio of financial to non-financial assets to 121%, the highest level in more than two decades. However, market experts note that households tend to treat equity investments as temporary wealth, while housing continues to play a central role in long-term financial planning and credit access.
Source Reuters
5th Jun, 2025
25th May, 2023
11th May, 2023
27th Apr, 2023
Advertisement
Facebook
Whatsapp
