Housing Slump Offsets Stock Gains, Dampening Consumer Wealth
Canada’s housing market slump, the longest in recent decades, is straining household spending even as a record high domestic stock market generates hundreds of billions of dollars of increased wealth.
Canada was the only Group of Seven advanced economy to post a home price decline last year in nominal terms, the latest Bank for International Settlements data and Reuters calculations show, as many households renewed mortgages at borrowing rates well above pandemic-era lows and as slower growth in immigration reduced demand for housing.
Less consumption due in part to lower housing prices could hinder Prime Minister Mark Carney’s efforts to revive Canada’s economy, which is also contending with a trade war started by the United States. Gross domestic product increased by 1.7 per cent in 2025, marking the slowest pace in five years.
Canadian household net worth still rose by more than $1-trillion in 2025 to $18.6-trillion, due mainly to appreciating financial assets as Canada’s natural resource-linked stock market posted the largest increase since 2009 and outperformed the main U.S. indices, benefiting primarily wealthy Canadians.
But analysts see little evidence of a wealth effect where households, feeling richer, spend more, because housing tends to have more impact than stocks on people’s financial well-being and the effect is greater when prices fall.
“There is nothing more devastating than seeing your home price depreciate,” said David Rosenberg, chief economist and strategist at Rosenberg Research.
“Equity market cycles come and go and are short-lived but in housing the downturn tends to be more prolonged. When it comes to the impact on the consumer psyche, housing is more important.”
An elevated savings rate is one sign that Canadians are not spending a greater share of their income, analysts say. The rate dipped to 4.4 per cent in the fourth quarter from 5.2 per cent in the previous quarter but remained near the top of its range in recent decades, outside of the pandemic era.
A poll on Monday by Angus Reid showed 70 per cent of Canadians want Carney to do more to improve the cost of living, although 58 per cent approve of his performance as prime minister.
Since the peak of a frothy housing market in February 2022, prices have fallen 20 per cent. The Iran war and oil price shock dealt a fresh blow to the housing market, as the resulting inflation threat lifted borrowing costs in the bond market, leading to higher mortgage rates. Last week, the Canadian Real Estate Association downgraded its housing market forecast for 2026 and 2027.
The reduction in consumption due to the housing market correction could be over $5,000 per household in total, according to one estimate in a note by Benjamin Tal and Katherine Judge, economists at CIBC Capital Markets.
“The negative wealth effect, although hard to quantify, is hurting consumer sentiment, while increased stress at the margin of the mortgage market means increased delinquency rates and reduced refinancing options,” the CIBC economists said.
Financial products, such as home equity lines of credit, or HELOCs, allow Canadians to borrow against the equity in their properties. When home prices drop, there is less borrowing to spend on renovations, vehicles and other major items.
Recent retail sales data shows some resilience in consumer spending but analysts doubt it will last due to weak consumer sentiment and a sharp increase in gasoline prices since the start of the war in the Middle East.
The Bank of Canada has forecast that consumption will contribute 0.7 percentage point to average annual GDP growth in 2026, down from 1.2 percentage points in the last two years. It is due to update its forecasts on Wednesday.
About two-thirds of Canadian households own their home and many of those have a mortgage, according to the latest census data, while surveys suggest that stock market participation excluding group retirement plans is less than 50 per cent.
Much of the gains from stocks flow to a minority of the population – almost 70 per cent of financial assets are held by the wealthiest 20 per cent of Canadians, according to Statistics Canada.
Canada’s main stock market, the TSX, has advanced about 7 per cent since the start of the year, posting a record high in March. The index, which has a market capitalization of $4.9-trillion, posted a gain of 28.2 per cent in 2025, putting it among the top-performing markets globally and well ahead of the 16.4 per cent gain for the S&P 500.
That helped lift the ratio of financial assets to non-financial assets to the highest level in over two decades at 121 per cent, fourth-quarter data for Canadian households showed.
“Households tend to treat equity portfolios as ephemeral paper wealth. While the family home, by contrast, anchors financial plans and, crucially, underpins the credit cycle,” said Karl Schamotta, chief market strategist at Corpay.
This article was first reported by Reuters
