Why Are Home Prices Still Rising in Canada Despite High Interest Rates?

Canadian homebuyers and homeowners alike are scratching their heads right now—how can real estate prices keep going up while interest rates remain high? Shouldn’t higher borrowing costs cool down the housing market? It’s a fair question, and while the logic seems straightforward, the reality is more complicated.

Let’s break it down and explore why Canadian home prices continue to climb, what factors are defying economic expectations, and whether this trend is sustainable through 2025.

High Rates, But Even Higher Demand Conventional wisdom says that high interest rates cool down housing demand by making mortgages more expensive. And while that is true in theory, Canada’s housing market isn’t driven by just one factor.

We’re in a situation where demand is still vastly outstripping supply. Immigration is at record highs, investor interest remains elevated, and the rental market is squeezed to the max. These forces are keeping prices buoyant even as borrowing becomes more expensive.

Canada’s Housing Shortage Is the Real Culprit At the heart of it all is a deep, chronic housing supply crisis. Canada simply isn’t building enough homes, especially in major urban centers like Toronto, Vancouver, and Calgary.

The CMHC estimates that we need to build 3.5 million new homes by 2030 to restore affordability. At the current pace, we’re nowhere close. So even if fewer people are buying because of high rates, the sheer lack of inventory keeps pushing prices up.

Immigration and Population Growth Are Fueling Demand Canada welcomed over a million newcomers in 2023 alone, and projections for 2024 and 2025 remain high. Many of these new residents settle in already-stressed urban housing markets. Even if they don’t buy homes right away, their presence increases rental demand—and rising rents often push more people to consider buying instead.

This feedback loop contributes to persistent price pressure. More people, same limited supply. You do the math.

Investor Demand Hasn’t Disappeared Despite higher rates, real estate investors haven’t completely backed off. Many are holding onto properties as long-term investments, especially in markets where rent is rising. With fixed supply and strong tenant demand, landlords are confident they can wait out rate volatility.

This reduces the number of listings available to regular buyers. In hot cities like Montreal or Ottawa, it’s not uncommon for investors to dominate segments of the condo and townhouse market.

Regional Price Growth Tells a Nuanced Story Not all markets are behaving the same. While places like Toronto and Vancouver have seen modest corrections from peak prices, smaller cities like Moncton, Regina, and Halifax are seeing year-over-year price increases.

The trend is shifting toward affordability migration. Canadians priced out of major metros are relocating to secondary markets, boosting prices in places that used to be considered “cheap.”

The Psychology of Scarcity There’s also an emotional and psychological component at play. Canadians still see homeownership as a financial milestone and a reliable path to wealth. This belief fuels urgency, especially when people hear that housing starts are down or that supply is drying up. FOMO (fear of missing out) is real in the housing world.

Will Home Prices Keep Rising in 2025? It depends. If interest rates come down—as many economists expect in late 2024 or early 2025—we could see a surge in demand. Pent-up buyers who’ve been waiting on the sidelines may jump back in, reigniting bidding wars and pushing prices even higher.

Unless housing supply ramps up dramatically (which is unlikely in the short term), any drop in rates could lead to another leg up in prices.

So What Should Buyers Do Right Now? If you’re waiting for a crash, you might be waiting a while. Instead of trying to time the market, focus on your own readiness: job stability, down payment, and what you can comfortably afford.

Get pre-approved for a mortgage to lock in today’s rate and give yourself some breathing room in case rates do dip later. And keep an eye on emerging markets if you’re priced out of the big cities—you might find better deals (and lifestyle) outside the core.

Final Thoughts Canada’s housing market is defying gravity, not because it’s immune to interest rates, but because the fundamentals are broken. With not enough homes to go around and a growing population, prices are being held aloft by demand-side pressure.

Until supply catches up—which may take years—expect the market to stay tight and competitive, even if borrowing costs stay high. If you’re in the market, knowledge and preparation are your best tools. And if you’re already a homeowner, count yourself lucky: in Canada, real estate remains one of the most resilient investments.