What Happens to House Prices During Recessions

Published on 29 August 2022, 07:22:56 AM

The new year came in with a blast, but what happens to house prices during recessions is a cautionary tale.

When you see these signs, a recession could be close behind:

• High consumer debt
• Overvalued asset bubbles
• Economic shocks like a war or pandemic
• Rapid technological change
• Untamed inflationary pressure
• Deflationary trends.

In other words, the time to worry about house prices during a recession may be now.  

Quick Read

Is recession coming in 2023 in Canada?

What happens to the housing market during a recession?

Will Canadian home prices drop in 2023?

Will a Recession Affect the Housing Market?

Market observers agree a recession is likely coming in 2023. 

Take consumer confidence measures. Three in five Ontarians surveyed say they won’t be able to cope financially if interest rates keep rising. Just over 50% don’t believe they can make ends meet without taking on more debt, the quarterly MNP Consumer Debt Index reveals (January 2023). A quarter of respondents (27%) are paying the minimum balance on credit cards. 

Ontarians have fewer options to borrow down payments — Canada Mortgage and Housing Corporation rules. 

That makes for unsteady sailing ahead for Canada’s housing market. CMP, the Canadian Mortgage Professional magazine, reassures Canadians a recurrence of the Great Depression is unlikely. Instead, what happens to the housing market in a recession in Canada is typically this: the continued volatility creates losses and opportunities for homeowners and buyers. Surviving higher interest rates. 

Predicting If Canadian Home Prices Will Drop

House prices in a recession tend to drop. Canada’s real estate powerhouses have been predicting that all along. 

Royal LePage’s 2023 Market Survey Forecast thinks detached homes in the GTA will decline by 2.5%. Condo prices could make it through recessionary pressures intact and even see a modest 1% increase. Losses to homeowners from a drop in house prices in a recession could be short lived. The Ontario-wide brokerage expects home buyer interest to pick up in 2024.

Ontario has seen some of the largest drops in house prices in a recession, competitor Re/MAX points out. Prices overall declined by 11% since 2022, with the greatest depreciation in places like Cambridge (22%), London, and Brantford (18% each). Kitchener-Waterloo, Kawartha Lakes, and Hamilton-Burlington took third place with a painful 17% dip. See what Ontario house prices are doing. 

The Real Estate Recession Canada Could See

TD Bank has cautioned homeowners house prices in a recession can be unpredictable. The mortgage lender believes Ontario homes could shed 20% to 25% of their value, with sales plummeting by 35%.

Growing demand will only worsen anxious home buyers’ dilemma. Increased immigration in 2023 and 2024 could worsen already taxing housing supply pressures. What should Ontarians do in a real estate recession?

1. Profit from Lower House Prices.

With house prices in recession, cash is king. Profit from lower house prices by looking for vendor take-back mortgages, private sales, and homeowners who need to cash out. Ask your realtor about foreclosures and court-ordered sales. Do you get a deposit back if the house sale falls through? 

2. Borrow From Your RRSP for Down Payments.

Withdraw RRSP savings temporarily with the federal Home Buyers’ Plan. You have up to a year (the clock starts Oct. 1) to buy or build a home for yourself or a relative with a disability. Ontarians can borrow up to $35,000, or legally married or common law spouses up to $70,000, from their RRSP for 15 years before it becomes repayable. Using an RRSP to secure a mortgage. While you’re at it, take advantage of first time home buyer Ontario incentives. 

More on federal home buyer programs. 

3. Retreat to Cottage Country.

Ontarians bailed out of the suburbs and cities in record numbers during the pandemic. Affordable gems are still available in small towns, on hobby farms, or at the lake. Get a local real estate agent to help you look. What’s up with cottage prices Ontario. How to buy a lake house. 

Why You Need a Real Estate Lawyer

Buying or selling houses in a recession may leave you frazzled. Axess Law smooths the way with licenced legal professionals who anticipate your every need. We keep our fees low so you don’t have to worry about your legal expenses.

Real estate offers you make or receive are legally binding. Before or after you sign, call Axess Law to review your agreement of purchase and sale. We discuss terms and conditions with you to ensure you fully understand the contract you are making. If changes are needed, your Axess Law real estate lawyer prepares an amendment to the agreement of purchase and sale. Drafting an amendment to the agreement of purchase and sale. 

We negotiate with buyers’ or sellers’ lawyers to ensure your real estate transaction is concluded on time and on budget. If you need more time or have to cancel for any reason, Axess Law reaches out to start the clock ticking again. We go over your contract to find terms that may bind or release a sale and explain how cancelling could affect your finances. 

Your Axess Law lawyer searches title to property you buy or sell to ensure it is free of financial claims and transfer it to the new owner’s name. We add title insurance if you are buying to protect your home from mortgage fraud. 

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario  when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.

Find a real estate lawyer (Ontario).

Phone for Appointments or Book Your Own

Call us to find legal appointments that suit your schedule. Dial our 647-479-0118 lawyer line in Toronto or call toll free to 1-877-402-4207. Book times yourself using our easy online web form. You can meet your real estate attorney in person at any of our conveniently located Ottawa or Greater Toronto Area law offices. We have onsite parking and easy transit access. Live elsewhere in Ontario? Axess Law makes virtual video conference calls anywhere you are, 7 days a week.  

Click here to learn more about Axess Law’s real estate law services.