Sales, prices and starts fall while experts warn housing could weigh heavily on economy
Canada’s housing market, which had consistently rebounded from previous economic shocks over the past 25 years, is now facing significant strain.
According to The Globe and Mail, this time the stress comes not from domestic conditions but from the trade policies of US President Donald Trump.
Sales have fallen sharply, dragging prices with them. Unsold inventory has risen—especially small, investor-targeted condominium units in cities that have done little to address family housing needs.
Amid record-low consumer confidence and the growing risk of inflation from the trade war, experts now expect housing to act as a major drag on Canada’s economic growth.
The situation marks a sharp shift from last autumn, when Bank of Canada Governor Tiff Macklem reflected widespread optimism in the real estate sector, saying falling interest rates would “fuel a stronger rebound in housing activity” in 2024.
David Doyle, head of economics at Macquarie Group, said, “The risk Canada faces now is stagflation, with both elevated inflation and weak economic growth, and that’s something central banks are not well equipped to fight.”
He continued, “I don’t think it’s a question of whether housing will pivot and become a tailwind. The debate should be over how significant a headwind the housing market will be.”
Next week’s federal election will hand the incoming government a real estate market in deep trouble.
Last month, home sales declined 9.3 percent—falling to the lowest level since February 2009 during the Great Recession.
Toronto saw only 5,011 sales in March, the lowest volume for that month since 1995, according to the Toronto Regional Real Estate Board.
March also marked the third consecutive monthly drop in prices, with the Canadian Real Estate Association reporting the MLS Home Price Index had fallen 8.5 percent on an annualised basis.
Buyers have pulled back. “I have multiple clients who have put their plans to buy on hold,” said Mike Hattim, a mortgage broker with Dominion Lending Centres in London, Ontario.
“It’s the uncertainty about the tariffs more than the tariffs themselves that is impacting people, whether that’s businesses or individuals,” he said. “How can you make a decision when everything is changing from day to day?”
Meanwhile, unsold home listings continue to accumulate. Ontario’s active listings have reached a 10-year high. Builders have slowed down as well.
“Homebuilding activity is extremely slow right now, we’ve had a depressed market for almost two years,” said Larry Masseo, president of the Waterloo Region Home Builders’ Association.
He also cited slow municipal approvals, rising development charges, and increased costs for materials and labour. “The tariffs are simply adding a new level of uncertainty on top of that,” he said.
The number of new housing starts in Ontario fell to 39,000 on an annualised basis in March, a level not seen since 2009 during the Great Recession, according to Canada Mortgage and Housing Corp.
Though bad weather contributed to the drop, housing starts had already been in decline since November.
This slump in construction could worsen Canada’s affordability crisis, as less new supply may keep prices elevated. Oxford Economics’ housing affordability index found that aside from Vancouver and Victoria, the least affordable markets are in Ontario’s southern region.
The index assumes a 20 percent down payment, a gross debt service ratio of 39 percent, five-year mortgage rates, and a 25-year amortisation period.
Economic momentum is already weakening. Ottawa has tightened rules on temporary immigration, restricting study and work visas after years of historic population growth.
That has reduced pressure on rentals—Rentals.ca reported a 2.8 percent annual decline in asking rents for new units in March, the sixth straight month of year-over-year rent decreases—but it also translates to fewer customers for Canadian businesses.
Compounding this is Trump’s pressure on manufacturers to relocate to the US.
A report by Tony Stillo, director of economics for Canada at Oxford Economics, projects that a trade war-driven recession could eliminate about 200,000 jobs in Canada by early 2026.
Historically, policy makers have relied on housing to jumpstart the economy during downturns.
Interest rate cuts have encouraged construction, lifted property values, and supported consumer spending through home equity borrowing.
During the 2007–2009 Great Recession, US housing prices fell by 30 percent and took 14 years to recover.
In contrast, Canada saw a 9 percent dip, which was fully reversed within a year. When oil prices collapsed in 2014, Calgary’s market flatlined for five years, but national home prices still rose at double-digit rates.
Similarly, activity rebounded swiftly following the 2020 pandemic shutdown.
However, Bank of Montreal senior economist Robert Kavcic said, “The starting point for housing is tougher this time, because valuations got so stretched the last few years.”
He noted that even after a correction of 10 to 20 percent since the 2022 peak, “affordability is still stretched.”
While the Bank of Canada may still have room to cut rates, Doyle warned that it lacks the flexibility it had during the financial crisis.
“Housing won’t become a channel for ignition like it has in the past,” he said.
This month, the central bank ended its streak of seven consecutive interest rate cuts, holding the benchmark rate at 2.75 percent due to inflation concerns.
“The Bank of Canada doesn’t want to get behind the curve and have a repeat of what happened postpandemic so they’re fixated on inflation,” said Stillo. “They don’t want to be burned twice.”
Trump’s moves to dismantle global trade systems have driven up bond yields, pressuring fixed mortgage rates.
Doyle said, “It feels like the best case for housing is five or 10 years where price growth tracks sideways and you get the relief coming through income growth.”
But he added, “The risk is things spiral with this trade war and we’re into a stagflation environment where it’s not a sideways movement any more, it’s a sharp downturn.”
