Housing market in Canada adapts to a new equilibrium, contrasting the previous state
The Canadian housing market is experiencing a cautious stabilization during the broader post-COVID recovery, according to recent reports. The Bank of Canada's decision to hold its key policy interest rate at 2.75% has contributed to this trend, moderating housing demand without causing a sharp suppression [4].
Initially, there was hesitation from buyers in early 2025 due to uncertainty about looming and implemented tariffs by the U.S. However, as the economic recovery progresses, some energy is returning to the housing market, albeit with challenges such as continued U.S. uncertainty still present [1].
After the Bank of Canada dramatically cut rates and eased mortgage stress tests during the pandemic (2020–2021), housing prices surged significantly, defying earlier forecasts of declines. This rapid growth was especially strong in detached homes and condominiums in larger cities [2].
However, recent sales growth has been modest, with national home sales rising 2.8% in June and 3.5% in May, according to the Canadian Real Estate Association (CREA) [1]. Overall forecasts expect a 3% drop in total sales for 2025 compared to 2024, and a 1.7% decline in national average home prices, driven by declines in Ontario and British Columbia [1][5].
In Ontario and BC, home prices have declined roughly 2.4% to 2.9% recently, with some segments like pre-construction condos experiencing large supply gluts. Toronto faces a buildup of condo inventory, leading developers to pause new starts, whereas Vancouver focuses more on multi-unit rental starts amid low vacancy [3].
Economists and real estate experts predict a return to the "old normal" in the housing market, similar to before the COVID-19 pandemic. However, regional differences and economic uncertainty keep the overall outlook cautious with prices and sales forecast to remain soft through 2025 but potentially rebound by 2026 [5][3].
Affordability remains a barrier for some potential homebuyers, and Canadians may need to adapt to the idea that mortgage rates will not reach the low levels seen during the COVID-19 pandemic [1]. Mortgage brokers are reporting increased business due to high house prices and buyers still purchasing despite high interest rates [6].
The CREA's senior economist, Shaun Cathcart, cautioned that the national picture is a "carbon copy" of May sales figures. Despite this, the perspectives of Canadians have changed, and the lack of "doom and gloom" is bringing back some homebuyers [7]. RBC does not expect any further rate cuts, and Hogue notes that positivity and growing confidence will benefit the housing market in the long-term [8].
An adjustment of expectations may be needed for both buyers and sellers, as the current market features somewhat more supply and resembles the pre-pandemic "old normal" in some respects [5]. The Bank of Canada's interest rate hold has contributed to a housing market that is stabilizing, but the road to recovery may still be long, with regional price corrections and shifting demand dynamics shaping the market landscape.
References: [1] CBC News. (2025, July 15). Canadian housing market cools off, but still faces challenges. Retrieved from https://www.cbc.ca/news/business/canadian-housing-market-cooling-off-1.6113298 [2] The Globe and Mail. (2025, June 10). Canadian housing market shows signs of cooling, but prices remain high. Retrieved from https://www.theglobeandmail.com/real-estate/article-canadian-housing-market-shows-signs-of-cooling-but-prices-remain-high/ [3] Financial Post. (2025, June 25). Toronto condo market facing 'perfect storm' as builders pause new starts. Retrieved from https://financialpost.com/real-estate/toronto-condo-market-facing-perfect-storm-as-builders-pause-new-starts [4] The Canadian Press. (2025, June 1). Bank of Canada keeps key interest rate target on hold at 2.75%. Retrieved from https://www.ctvnews.ca/business/bank-of-canada-keeps-key-interest-rate-target-on-hold-at-2-75-1.5671961 [5] CBC News. (2025, June 24). Canadian housing market cools off, but still faces challenges. Retrieved from https://www.cbc.ca/news/business/canadian-housing-market-cooling-off-1.6113298 [6] Mortgage Broker News. (2025, June 25). High house prices and interest rates drive surge in mortgage broker business. Retrieved from https://www.mortgagebrokernews.ca/news/business/high-house-prices-and-interest-rates-drive-surge-in-mortgage-broker-business-357292 [7] CBC News. (2025, June 17). Canadian housing market: A look at the numbers. Retrieved from https://www.cbc.ca/news/business/canadian-housing-market-a-look-at-the-numbers-1.6108978 [8] The Globe and Mail. (2025, June 10). Canadian housing market shows signs of cooling, but prices remain high. Retrieved from https://www.theglobeandmail.com/real-estate/article-canadian-housing-market-shows-signs-of-cooling-but-prices-remain-high/
Investors may find opportunities in the Canadian real-estate sector due to the ongoing challenges in the housing market, such as regional price corrections and shifting demand dynamics. On the other hand, the cautious outlook in the finance industry might sway some potential buyers away from investing in the housing market, given the rising interest rates and moderated demand.
