Canada’s housing crash is close to rivalling the early 2000s crash in the US. In contrast, Canada seems relatively unscathed, despite being a smaller economy that’s more dependent on housing. BMO’s chief economist notes the country is better positioned to avoid a financial crisis, but its pain avoidance is partly an illusion—hidden by Canada’s aggressive use of immigration.
Canadian Home Prices Are Following The US Housing Crash
Source: BMO Capital Markets; CREA.
The Canadian housing correction is following the same trajectory as the U.S., but with a different outcome. Home prices in Canada have dropped 20.5% from the early-2022 peak, compared with 26% during the U.S. bust. However, Canada avoided a comparable economic collapse—its real GDP grew at an annualized pace of 1.7% over the four years since prices started falling. That’s only slightly below the 2.0% average for this century, which is remarkable considering the country’s housing-dependent economy.
“This is arguably the most significant home price correction ever for Canada, and yet the economy has managed to avoid serious collateral damage from the deep decline,” explains BMO Chief Economist Douglas Porter.
He notes Canada has seen only one “traditional” recession in the past 35 years. That was the Global Financial Crisis, with 2020 being a very different policy-induced shutdown. He clarifies, “… it’s not as if recessions never happen, they are now just extremely rare events, and it takes a near cataclysm to cause a full-scale downturn.”
How? There’s some clear factors that helped mitigate the worst of the fallout—at least on the surface.
Stronger Borrowers And Rate Cuts Helped Contain The Fallout
The bank sees the brief period of peak home prices as one of the key differentiators. Porter notes prices surged 50% over the final two years, containing the damage to a relatively small pool. The correction is also largely contained in two provinces, leaving prices relatively unscathed for almost half the country. A substantial wealth cushion also helps limit spending cutbacks, while an aging population increasingly supports consumption through non-employment income such as pensions. In fact, seniors (aged 65+) represented over 1 in 5 (22.4%) dollars of consumption in 2025.
Source: BMO; Haver Analytics; Statistics Canada.
The bank also notes that the finances were stronger. Mortgage qualification hurdles, like the stress test, helped minimize the volume of overextended borrowers. Rate cuts began less than a year after rates peaked, softening the normalization shock. Overall, the headline data reveals an economy that’s darn near invincible.
Skeptical that a housing-based economy could survive a US-style housing correction with so little damage? There’s a good reason—the apparent escape may have been partly an illusion, according to Porter.
Canada Avoided A Financial Crisis, But It Didn’t Avoid The Pain
Porter believes Canada avoided the financial crisis, but avoiding the pain is partly an “illusion.” The population grew at an annualized pace of 2.8% over two years to early 2024, generally faster than GDP averaged. This helped to offset—possibly more than offset—any pullback in GDP. The economy grew, but the population grew faster—meaning less economic output per person, despite headline gains.
Source: BMO; Haver Analytics; Statistics Canada.
Measured per person, real GDP per capita fell in four of five quarters during the 2022-23 stretch, falling more than 2% peak-to-trough. Unemployment also climbed more than 2 percentage points over that period, a rare combination. Porter says this has only occurred a handful of times in the past 60 years—and only during official recessions.
Source: BMO; Haver Analytics; Statistics Canada.
“In other words, some of Canada’s Housing Houdini may have in fact been an illusion, not unlike the original act,” says Porter.
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