What’s Happening To Canadian Home Prices?

Canada is an interesting analogue to Australia in so many ways, with its reliance on resources and massive exposure to property. Indeed, prices in some centres boomed through the recession. But now property values are falling, and further drops are expected. So today we look at analysis from Canada thanks to RBC Economics.

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  1. Martin will do anything and everything but talk about Brisbane home prices, always talks of Sydney and Melbourne declining but doesn't acknowledge Brisbane's housing market is completely different and is still rising because it proves everything he says is bunkem

  2. In Australia, at the end of 2021, the RBA's official cash rate was 0.1 percent. The inflation rate for the year was 3.5 percent, making the real (not nominal) interest rate minus 3.4 percent.

    The RBA's cash rate is now 1.85 percent and inflation is at 6.1 percent and forecast to reach 8 percent by the end of 2022.

    This means the real interest rate (not nominal) is minus 4.25 percent.

    So, in effect Australia has gone from a REAL interest rate of minus 3.4 percent to minus 4.25 percent. This is a big increase in STIMULATORY policy and effect. It will not stop inflation.

    Okay, so on the forecast, let's assume the RBA raises the cash rate by 1 percentage point from 1.85 to 2.85 by the end of the year (2022) against a forecasted inflation rate of 8 percent, that puts the REAL interest rate at minus 5.15 percent.

    This means the RBA has got a very STIMULATORY policy, because the REAL interest rate is going from minus 3.4 percent to minus 4.25 percent to minus 5.15 percent.

    We should be dampening stimulus to control inflation, which means setting a much higher cash rate to at least match inflation by taking the cash rate to 8 percent, which would put the variable mortgage rate at about 12 percent plus.

    There will be a delayed effect because unemployment figures will lag the actual reality and will be understated as well.

    The Australian government must not follow the green madness of CO2 targets. High fuel costs rip through all products in the economy and increases inflation. We must have a sensible transition to renewables and consider nuclear energy. Renewables are a long, long way off from providing base load power.

    Hold onto your hats.

  3. My niece in Vancouver tried to sell her tiny apartment in downtown Vancouver a few months ago just as the market was collapsing. She has given up and now trying to rent it out.
    I guess not too many Aussies will recognise the building pictured at 0:00, 5:33 and 8:44. In an earlier life I used to drive past it on the way to and from work every day (or in winter blizzards, crawl past it in the most massive traffic jams imaginable!)

  4. Thanks, Martin for this one. Do you think Australia is more conservative with the rate hike than all other countries? RBA has a big time lag with reality. I doubt we can control inflation in this way.

  5. Regulating banks be declaring "Only 50% of your money can go into mortgages, the other 50% must go to businesses" and keeping the OCR low would have stimulated business growth, reinvestment, expansion yet capped house price growth (The main point of the rate hikes)

  6. All predictions are meaningless. The world is about to explode in warfare and the global economic collapse that follows will be pointed to as the sole reason by the clowns in suits.

  7. RBNZ has stated that they will have a terminal cash rate of 4.1% by early next year. It really demonstrates by contrast how weak and lacking in resolve our central bank is.

  8. As long as real estate is seen as an "investment" the housing situation will never be solved. It's another cog in the wheel of making money. The only hope you have is to save and wait for the bubble to burst again and then vote to have wherever you bought the house to be rezoned for multifamily, only then can we solve the housing problem

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