Canadian real estate has become the largest part of most people’s net worth, but the market is now entering a painful adjustment period. After almost 20 years of nonstop price increases, the peak appears to have been in 2022. Since then, prices, sales, and overall activity are all dropping, and consumer psychology is starting to shift.
1. Wealth Effect in Reverse
When home values rise, people feel richer and spend more.
Now, as home prices fall 10–30% in some areas, many Canadians feel less wealthy, which leads to:
- Lower spending
- Less financial support for adult children
- More caution in investing and borrowing
This creates a slowdown across the economy.
2. The Big Risk: Mortgage Renewals
Thousands of Canadians who bought at peak prices in 2020–2021 with very low interest rates (0.9%, 1.3%) are now facing renewals at much higher rates.
This means:
- Huge jumps in monthly payments
- Incomes not keeping up with inflation
- Pressure on families’ cash flow
- Increased risk of forced sales or defaults
This is shaping up to be a major factor affecting 2025–2026.
3. Overdependence on Real Estate
Real estate contributes 8–9% of Canada’s GDP, and many industries depend on it:
- Construction
- Trades
- Real estate services
- Lawyers & mortgage brokers
- Home appliances & furnishings
With sales slowing and projects being cancelled, ripple effects will hit jobs and economic growth.
4. Investor Exposure is Very High
Many “wealthy” Canadians are only wealthy on paper, because most of their net worth is tied to home equity.
Small landlords are especially vulnerable:
- Some used rising appraisals (not real cash) to keep buying properties
- Vacancies are rising
- Rent growth is slowing or reversing in major cities
- Mortgage payments are rising
- Refinancing is getting harder
This creates a risk of a wider investor pullback.
5. Consumer Confidence Will Drop
If people believe their home value is falling, they will:
- Spend less
- Save more
- Avoid big purchases
- Delay investing
- Be less likely to move or upgrade
This slowdown will likely continue into 2026.
Bottom Line for Investors
Canadian real estate isn’t collapsing, but the air is coming out of the balloon.
The next few years will depend heavily on:
- How Canadians handle mortgage renewals
- Whether incomes finally rise
- Government responses to housing affordability
- Population growth trends
- Interest rate cuts (and how quickly they arrive)
Investors should expect slower growth, more volatility, and a return to fundamentals, not speculation.
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