Canadian Housing Market Faces Sluggish Recovery

Ottawa | September 26, 2025 — Canada’s housing market is still struggling to regain momentum, even after the Bank of Canada’s recent rate cut offered borrowers some relief. Analysts warn that broader economic headwinds — from trade tensions to sluggish growth — are keeping demand muted. Oxford Economics now projects that housing activity may see only a modest pickup through late 2025, with home prices facing continued downward pressure into 2026.

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Why the Market Is Still Soft
Lower mortgage rates are usually expected to spark stronger homebuying demand. However, Canada’s housing market today is battling multiple cross-currents. Trade uncertainties and slowing global growth have hurt investor confidence. Household debt remains near record highs, making buyers cautious despite slightly easier borrowing conditions.

Even with bond yields and variable mortgage rates edging lower, affordability has not improved enough to bring a wave of new buyers into the market.

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Economic Backdrop
Oxford Economics expects the Canadian economy to grow only modestly through the remainder of 2025. While inflation has eased, wage growth has been uneven, and job creation is slowing. This weaker outlook is feeding directly into housing sentiment.

Sluggish GDP growth means fewer households feel confident about taking on large mortgage obligations. At the same time, many who locked into high fixed rates in 2021–22 are still under stress as renewal dates approach, keeping overall housing demand constrained.

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Inventory Is Rising
Another important shift is happening on the supply side. Listings in major urban centers such as Toronto, Vancouver, and Calgary have been steadily climbing. More sellers are coming to market, either to cash out before further price declines or because they are struggling with higher mortgage costs.

The result is more inventory available to buyers, which would normally be positive, but in today’s environment it is contributing to softer price trends. Buyers have more choice, and sellers are having to adjust asking prices to remain competitive.

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Buyer Conditions Improving — Slowly
For those still in the market, however, the conditions are becoming more favorable.

• Lower rates are reducing monthly payment calculations.
• Rising inventory is giving buyers more negotiating power.
• Softening prices are improving long-term affordability.

This has led to pockets of opportunity, especially for first-time buyers with stable incomes. Some are re-entering the market now, sensing that the window for better deals may not last once broader economic conditions stabilize.

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Regional Dynamics
Not all provinces are moving in lockstep.

• Ontario and B.C. remain the softest, with high home prices still colliding with weak affordability.
• Prairie provinces like Alberta and Saskatchewan are showing more resilience, helped by stronger labor markets tied to energy and agriculture.
• Atlantic Canada continues to see steady but slower activity after the pandemic boom, with affordability still comparatively better than major urban markets.

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Investor Activity Cools
Speculative investor demand, once a major force in Canadian housing, has cooled sharply. Higher financing costs over the last three years squeezed rental property margins, and many investors are now cautious. Some are offloading properties, adding to supply. This cooling investor presence reduces bidding wars and price spikes, but also underscores how demand has shifted away from frothy pandemic-era levels.

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What Analysts Expect Into 2026
Oxford Economics forecasts that home prices could continue to drift lower into 2026 before stabilizing. The combination of slower economic growth, cautious lending by banks, and the gradual reset of mortgage renewals is expected to cap housing activity.

That said, analysts also stress that the correction is not expected to be a crash. Canada’s long-term fundamentals — immigration, limited housing stock, and urbanization — remain intact. Once broader economic conditions improve, the market could find firmer footing.

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Risks to Watch

1. Global trade tensions — A deeper slowdown in global demand could spill into Canada’s economy and weaken housing further.
2. Employment trends — If job markets soften more than expected, buyer confidence will suffer.
3. Future Bank of Canada moves — If rate cuts stall, affordability improvements could be limited.
4. Regulatory shifts — OSFI has already signaled tighter lending oversight, which could restrict mortgage growth.

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Why This Matters for Homebuyers
For Canadians sitting on the sidelines, the message is mixed. Yes, lower rates and softening prices provide opportunity. But economic uncertainty means timing the market carries risk. First-time buyers should focus on long-term affordability rather than chasing short-term price dips. Existing homeowners approaching renewal should explore all options early — including switching lenders — to secure the best possible terms.

Canada’s housing market may be slowly resetting, but the journey is far from over. For now, buyers hold the advantage, while sellers and policymakers alike are watching closely to see if a true recovery takes shape in 2026.