Sales have dipped but construction costs may impact supply and prices going forward
With tariffs threatening to slow down the Canadian economy, it’s hard to dismiss the caution of many would-be homebuyers right now. After all, making a major investment amid such economic uncertainty is not for the faint hearted.
But there are also concerns about how the economic environment – and the direct impact of tariffs – may affect the construction industry, potentially adding pressure to existing supply challenges which may further weaken affordability.
Much is uncertain, but what we do know is that home sales slipped in February, according to the latest stats from the Canadian Real Estate Association, published Monday.
CREA reported a 10% month-over-month drop in sales activity recorded over Canadian MLS systems in February. This was the largest monthly decline since May 2022 and took home sales to their lowest level since November 2023.
Almost all large markets and almost three quarters of all local markets posted declines, but the Greater Toronto and Greater Golden Horseshoe areas saw the most pronounced downward trend.
“The moment tariffs were first announced on January 20, a gap opened between home sales recorded this year and last. This trend continued to widen throughout February, leading to a significant, but hardly surprising, drop in monthly activity,” said Shaun Cathcart, CREA’s senior economist. “This is already being reflected in renewed price softness, particularly in Ontario’s Greater Golden Horseshoe region.”
For those who are looking to buy, the number of available listings dropped in February by almost 13% from January, and while the number was up 13% year-over-year, the total number of homes to choose from remained below the long-term average for the time of year.
The MLS Home Price Index declined 0.8% month-over-month and was down 1% on a year-over-year basis while the actual (not seasonally adjusted) national average sale price fell 3.3% on a year-over-year basis.
Construction challenges
While some buyers may find a decrease in prices to be an opportunity to buy the dip, those who continue to wait may find a lack of supply makes it harder to find the home they want and may see prices rise.
Earlier this month the Canadian Home Builders’ Association warned that tariffs may lead to a drop in housing starts and/or lead to higher construction costs that will weigh on affordability.
“A slowdown in the Canadian economy due to fewer exports to the US because of these tariffs would be the number one challenge, as a slowing economy inevitably leads to reduced residential housing investment, starts, and supply,” says CHBA CEO Kevin Lee.
The CHBA says that imports of glass and glass products, major appliances, hardware, and ceramic tile and products amount to close to $10 billion worth. And while other suppliers in countries other than the US may be able to meet supply, costs will likely be higher than the pre-tariff US alternatives, especially if the trade war weakens the loonie.
Even where products are available from Canadian suppliers, such as lumber, there could be an indirect consequence of tariffs on the construction industry is suppliers shut down production in response to a slump in US orders.
“While Canada’s retaliatory tariffs are understandable, all considerations regarding the industry and housing supply and affordability should be considered, with an emphasis on avoiding tariffs on construction products and materials, unless other domestic or import solutions can be easily found for comparable prices. Governments can also help offset the impact that countervailing tariffs will inevitably have on housing affordability by removing the GST (and PST/HST) on new construction, as well as lowering development taxes at the municipal level, particularly in those municipalities with extremely high development taxes,” Lee said on March 4.
Housing starts
CMHC said Monday that the total monthly seasonally adjusted annualized rate of housing starts for all areas in Canada decreased 4% in February (229,030 units) compared to January (239,322 units).
For centres with populations of 10,000 or more, actual housing starts were down 17% year-over-year.
Among Canada's big 3 cities, Montreal posted a 6% year-over-year increase in actual housing starts last month with increases in both multi-unit and single-detached starts, but Vancouver recorded a 48% decrease and Toronto’s starts fell 68% from a year earlier, both driven lower by decreases in multi-unit and single-detached starts.
