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While February’s housing report from the Canadian Real Estate Association contained “green shoots” that suggest the market may be stabilizing, it also cemented this as the steepest house price correction at the national level in decades.

According to CREA data, the typical home in Canada has fallen by $132,000, or 15.7 per cent since February, 2022. As bad as that sounds, the drop is actually worse once the corrosive effect of high inflation on purchasing power is factored in. In real, or inflation-adjusted terms, national house prices have fallen nearly $168,000, a more-than-19-per-cent decline.

Inflation adjustments are not something homeowners typically factor into their view of real estate prices. “People don’t think in real terms when they talk about how much their house price has changed,” said Ben Rabidoux, founder of market research firm North Cove Advisors Inc.

One reason is that it didn’t matter much before. With annual inflation averaging around 1.6 per cent in the years prior to the pandemic, house price comparisons from one year to the next held more meaning.

A steeper correction in real terms has more to do with the psychology of prices than actual affordability. A common refrain among real estate professionals is that despite the drop, prices are still well above prepandemic levels, but that’s only half as true after accounting for inflation.

Meanwhile, even though real prices are now just 5.5 per cent higher than in April, 2017, bigger mortgages and higher interest rates mean ownership costs eat up 60 per cent of average household incomes now, compared with 44 per cent then, according to RBC Economics.

Decoder is a weekly feature that unpacks an important economic chart.