Most Canadian housing markets have been more sluggish so far in 2025 than originally expected, says Robert Hogue, assistant chief economist at RBC Economics in a new report. In a January 2025 report, Hogue said lower interest rates would push up home sales volumes and prices across the country, but in his new report, released on Tuesday, Hogue said US tariffs and subsequent trade war took the steam out of a growing demand for homes, pushing down prices, in particular in Ontario and BC. “We now project home resales will decline 3.5% in Canada to 467,100 units this year with the first half seeing a 4.1% pullback, largely concentrated in Ontario and BC,” said Hogue. “Encouragingly, recent signs of an ongoing recovery have emerged. Prospective buyers are re-entering the market as economic fears ease and lower interest rates gain traction. We expect this gradual recovery to continue in the second half of 2025, setting the stage for stronger demand in 2026.” RBC is projecting a turn around of 7.9% in sales in 2026, to 504,100 homes, which is still below the pre-pandemic five-year average of 511,000 homes and based on a fragile labour market, reduced immigration targets and affordability challenges. .“For pricing, supply-demand conditions have shifted in buyers’ favour, particularly in Ontario and BC where affordability issues are acute,” says Hogue, who expects the composite home price index will show a small increase of 0.7% this year, based on transactions earlier in 2025. “We anticipate prices will decline in the latter half of 2025 and into 2026 with Ontario and BC experiencing the steepest drops due to high inventory levels and strong competition among sellers,” says Hogue, adding “nationally, prices are expected to decline by 0.7% in 2026, reversing this year’s modest increase.” There isn’t a real ‘Canadian housing market’ with different regions experiencing differing conditions, with Hogue forecasting varying prices across the country. “Balanced supply-demand conditions in the Prairies, Quebec, and parts of Atlantic Canada are expected to support modest price gains in 2025 and 2026,” he says. “In contrast, Ontario and BC will continue to face challenges with imbalances in condo markets in Toronto and Vancouver likely spilling into other segments.” The home-buying frenzy created b y the COVID-19 pandemic has abated, says Hogue. .“The subsequent market slump triggered by rate hikes in 2022 largely corrected this unsustainable surge,” he says. “We believe a growing number of Canadians are ready to re-enter the market under the right conditions such as improved affordability, stable interest rates, and better job prospects.” The ever present specter of trade wars is expected to lighten, with recent developments suggesting its impact will not be as widespread as initially feared, reducing some uncertainty. “We expect Canada’s economy to gain momentum in the second half of 2025 and accelerate further in 2026, gradually improving labour market conditions,” says Hogue. “The unemployment rate is projected to peak at 7.1% in late 2025 before easing next year.” More rate cuts by the Bank of Canada are not expected anytime soon nor in 2026, says Hogue. “Additional stimulus from rate cuts is unlikely. Our forecast anticipates the BoC will hold its policy rate steady at 2.75% through 2026,” he says. “Longer term rates have also started drifting slightly higher as bond markets price out further monetary easing.” “Homeownership costs are the lowest they have been in three years, a trend expected to continue and bring more buyers into the market.” .A big factor in housing markets returning to more balanced and reliable conditions is lower immigration targets, says Hogue. “The federal government’s substantial cuts to immigration targets will slow population growth and household formation, primarily affecting rental demand. Newcomers, who typically rent for five to 10 years after arriving, will account for much of this decline,” he says. “This shift will also have knock-on effects in urban condo markets in Toronto and Vancouver where investor demand is expected to remain subdued. Other segments of the housing market will feel the demographic impact more gradually.”
