If you’ve been keeping up with housing market news over the past few years, you’ve likely heard the term “housing bubble” get thrown around. It’s a phrase that might incite some concern, particularly after the 2008 subprime mortgage crisis in the US. But what is it and is Canada in a housing bubble? And if so, will real estate crash in Canada?
In this post, we’re exploring everything you need to know about real estate housing bubbles.
Thinking about selling your home? Wondering what it could be worth in today’s market? Request a complimentary home evaluation today.
What Is a Housing Bubble?
A housing bubble is when there is a steep increase in the demand for housing resulting in rapid price growth. In many cases, this growth is further manipulated by speculation (when investors try to capitalize on short-term results) and outside economic factors; and is not sustainable. When the market contracts, there is a housing correction, prices drop, and the bubble bursts, so to say.
It’s perfectly normal to see the market fluctuate over the years, but what makes a housing bubble different from normal market behaviour is the rapid nature of the changes.
Do you have specific questions about buying a home in Toronto? Here are a few more posts you might find helpful:
- Buying Your First Home: Preparing For Success
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- What to Know When Upsizing Your Home
How Is a Real Estate Housing Bubble Created?
There are many factors that can lead to bubble-like conditions in the housing market. The most famous example is the US subprime mortgage crisis of the 2000s. In this case, interest rate cuts and deregulated financing practices led to an influx of risky mortgages given to those who would otherwise be denied more traditional mortgages.
However, as we know, rapid growth is not always sustainable. Eventually housing demand cooled and interest rates began to creep back up resulting in home prices dropping. Many of those who had signed up for variable rate mortgages, did not have the ability to make their payments, resulting in widespread mortgage default that then triggered even greater economic ramifications.
Defaulting on a mortgage could trigger a power of sale. Keep reading for everything you need to know about power of sale.
A more recent example could be the COVID-19 pandemic. In 2020, at the start of the pandemic, most central banks aggressively cut policy rates to safeguard the economy during a global crisis. Record-low interest rates combined with a shift to spending more time at home, and even working from home, resulted in many people wanting to buy real estate. Prices surged and talk of a housing bubble in Canada began heating up again.
Are you thinking about selling your home now or in the near future? Read these posts next to get answers to all your home-selling questions:
- How to Sell Your House: Before You Begin
- When Is the Best Time to Sell a House in Toronto
- Downsizing Your Home for Retirement in West Toronto
What Happens When a Housing Bubble Bursts?
When a housing bubble bursts, we see property prices go down, in some cases, very rapidly. These market corrections can lead to negative equity, which is when a home value is less than its mortgage. In extreme cases, this can lead to homeowners defaulting on their loans, unable to sell or refinance, or even selling their home at a loss.
When demand eases, new construction may also start to slow down. These factors, paired with overall financial instability and trepidation among consumers, could lead to a recession.
The housing market is closely linked to interest rates. But how exactly does it work? Read our post: Will Interest Rates Cool the Hot Seller’s Market to see how interest rates impact real estate.
How Does This Apply to the Real Estate Market in Canada?
During the pandemic, the Bank of Canada cut its policy rate much like other central banks across the world. At the same time, the country saw record levels of immigration, resulting in a significant spike in housing demand. You could say it was the start of a housing bubble.
However, Canadian financial policy is designed to help prevent massive crashes like subprime mortgage crisis of 2008. For example, the mortgage stress test is a policy designed to assess the safe amount of debt a borrower can handle, limit the maximum amount a person can borrow, and reduce the chances of mortgage default if interest rates go up.
The real estate market moves at lightning speed. Sometimes it’s hard to separate fact from fiction. Here are a few more posts to help answer some of your questions:
- Debunking 4 Common Real Estate Myths
- 5 Common Mistakes Home Sellers Make
- Why Negotiating Skills Matter in West Toronto Real Estate
Will House Prices Go Down in Canada?
The real estate market reached its peak in 2022. Since then, we’ve seen a market correction and the softening of prices. However, although home prices are down from the peak of the market (as of this writing in 2025), they are still significantly higher than pre-pandemic figures.
Will the Housing Market Crash in Canada?
It depends who you ask! Some market experts say Canada’s housing bubble has already burst. Some say it’s only a matter of time. While others say the market will avoid a crash altogether.
This discourse has been happening for years at this point. In fact, if you search “housing bubble Canada” you can find news articles dating all the way back to 2017 talking about the market crashing. And we all know what happened after that.
What type of mortgage is best for you? Read our post: Variable Vs. Fixed Mortgage: What to Know When Rates Change for more insight.
Can You Trust Housing Market Predictions?
The reality is that no one has a crystal ball and can predict with absolute certainty what will happen in the market. Yes, there is data that can support short and long-term trends, but the housing market is intrinsically tied to so many parts of the economy that it’s almost impossible to guarantee a result in the future.
Wondering what it’s like to work with Sidorova Inwood for your next home purchase or sale? Read these posts next to get a better idea:
- Why You Should Hire a Full-Service Real Estate Agent
- Buying a House: Why Work with Sidorova Inwood
- 5 Reasons Your Agent Should Be a Neighbourhood Expert
How to Navigate an Uncertain Real Estate Market
Industry veterans have seen the Canadian real estate market cycle through ups and downs. Here at Sidorova Inwood, we have decades of experience helping our clients navigate the market. We’ve seen the highs and we’ve seen the lows and throughout it all, we understand that real estate is about more than a news headline.
At the end of the day, there will always be people who need to buy and sell real estate. Families who need more space, young people who want to take the first step on the property ladder, retirees looking for a home that will support their lifestyles; real estate is about people.
And just as the market is continuously fluctuating, your life, needs, and goals, are also changing. Furthermore, your unique situation is going to be completely different from your neighbour.
In a 24-hour news cycle, there will always be headlines about the real estate market—it’s an interesting topic that everyone wants to know about. But when it comes to actually making decisions about your future, it’s best to take those headlines with a grain of salt and get help from experienced professionals who can guide you based on your unique experiences and needs. Uncertain market or not, there are always opportunities for those who look for them.
Whether you are buying or selling in Toronto’s west end, Sidorova Inwood is here to make your experience stress-free and successful. If you’re ready to get started, simply fill out the form below, call us directly at 416-769-3437, or email us at info@sidorovainwood.com today.
