How Far Does the Canadian Housing Market Have to Fall to Reach Equilibrium?

In 2017, the Canadian Housing Market peaked in the second quarter of 2017. Since then, prices have declined modestly, by just 5.28% as of the first quarter of 2019. So, the housing market has slowed down and not quite reached correction levels of a 10% decline.

House prices could still fall by 28.00% to align themselves with the growth in personal disposable incomes. In terms of the ratio of real house prices to real personal disposable incomes, house prices have fallen even more: 7.70% from Q2 of 2017 to Q1 of 2019. The  ratio is now almost within two standard deviations from the historical mean. In other words, they less extremely overvalued and are just starting to enter merely overvalued territory. The probability of house prices being any higher is now only 1.35% instead of 1.30% the last time we looked. The improvement is infinitesimally small.

 If the ratio does revert to the mean, house prices could fall by 31.56%. 


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