Credit rating giants predict Canada's real estate downturn will continue in 2019. Fitch Ratings predicted lower home prices in 2023. After three decades of unchecked price growth, affordability is at an all-time low. As home prices adjust, high rates will reduce demand. Delinquencies will rise sharply as the market cools.

Next Year, Canadian Home Prices Will Fall

Canada's real estate prices are falling, according to Fitch Ratings. Prices are expected to fall 5%–7% in 2023, down 15% nominally from peak to trough. Inflation makes nominal terms important. 2024 will see lower-than-average price growth.

"The fall will be driven by continued interest rate rises expected through 1H23, inflationary pressures, a stagnant economy, and declining affordability, all of which will dampen demand," said Susan Hosterman, Senior Director of North America for Fitch Ratings.

Other firms predicted a much larger decline. Hosterman credits market support. Net immigration, supply imbalance, and rising rents are reasons. If inflation-fighting measures slow the economy, demand may suffer.

Affordability has never been worse, according to Fitch Ratings. The firm cites a 6.5% five-year fixed rate (they need to find a better agent). Due to skyrocketing home prices, higher rates are a problem. They say "persistently high home prices" haven't dropped since the 90s.

The Number of Canadians with Past-Due Mortgages Is Expected to Soar

The rate of mortgage defaults in Canada is expected to increase dramatically over the next few months. An increase of 11 bps from this year's rate is projected for 2023, when the delinquency rate is expected to reach 0.25 percent, according to Fitch Ratings. This surge is especially dramatic given that it predicts over 75% more mortgage defaults. Even at this higher level, the rate is still far below normal and helps counteract the abnormally low rates seen during a bubble.

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