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A sale sign in Toronto in May, 2021. The national average resale house price peaked at $816,720 in February and has since come down to $746,146 in April.Christopher Katsarov/The Globe and Mail

The most positive financial development of 2022 so far is the end of the housing frenzy.

House prices went up too much, too fast. A lot of money has been made in real estate and a lot of economic activity generated, but we need a pullback to restore a degree of economic rationality.

Expect some ugliness as we make the transition from boom to whatever lies ahead for housing – stagnation, mild decline or bust. Canadians have so much invested in housing, both financially and emotionally. Seeing housing deflate will not bring out the good in people.

A prediction on the first to be judged: people who bought at the top of the market. Already, we have the phrase “buyer’s regret” making the rounds in media stories.

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The national average resale house price peaked at $816,720 in February and has since come down to $746,146 in April. Average prices last month were more than 50 per cent higher than the same time in 2020 and up 7.4 per cent over April, 2021. But housing has sprung a leak for sure. Economists say a price decline of as much as 10 per cent to 20 per cent is possible.

As recently as a month or two ago, we lived in a bid-till-you-bleed real estate market. Prices kept rising no matter how much people paid, so no deal was a bad deal if it got you into the market.

This was intergenerational thinking, not the whim of an inexperienced young generation trying to get into the housing market. Consider all the parental money that went into building down payments for first-time buyers. A CIBC Economics study last fall said almost 30 per cent of first-time buyers got down payment money from parents, and these gifts averaged $82,000 in value.

The home ownership imperative was also fuelled by the evolution of houses into a commodity to invest in, such as oil, metals or gold. In this financialization of housing, investment companies bought houses to rent out and new ventures emerged to allow people to buy fractional shares in houses and buildings.

Housing hardly needed a cheerleading section, but it had one in a real estate industry that was masterly in how it explained away the fundamental problem of house prices rising far ahead of incomes. Immigration justified prices. A lack of supply was the problem. The same goes for red tape holding up construction of new housing.

In Canada, every social cue tells young people to buy a house. Your parents don’t want you to miss out, your friends are buying and Instagramming their new lives and renters are maligned as patsies paying their landlord’s mortgage. In fact, renters pay a legitimate cost for shelter and save a bundle by not owning, money they can use to invest.

Excitement about housing used to be a Toronto and Vancouver thing. The mania later spread to places located within commuting distance of these urban centres and, in the COVID-19 pandemic, to far-flung communities that offered bigger houses for less money. A national consensus emerged: Housing was an unstoppable force. If you could afford to buy, you pushed until you scored a house.

Skeptical voices on housing spoke out along the way, some of them in the real estate business. But house prices steamrolled everyone and everything in their path, including a global pandemic. It sure looked like housing was an exception to the gravitational law of investing, which says everything that goes up in price must come down at some point.

Housing fought the law, and the law won. Now, what?

A few points for all to consider:

  • Rising interest rates make it more expensive to buy a house now compared with earlier this year, even as prices fall.
  • Immigration levels will help sustain demand for housing.
  • Labour shortages will restrain construction of new housing to satisfy this demand.
  • Staying five to 10 years in a house puts you in a position to see any near-term price declines turn into the next leg up for housing.
  • Buying a house you could afford at peak price levels was only a mistake if you planned to flip it.

House prices coming down is good for the country. It doesn’t have to be bad for recent buyers.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.