Canada Housing Market Declines in 2025 as Trade Tensions and Economic Uncertainty Mount

Canada’s housing market is forecast to weaken further in 2025 as ongoing trade tensions, slowing immigration, and macroeconomic uncertainty weigh on confidence among homebuyers and developers.

According to the Canada Mortgage and Housing Corporation (CMHC), national home prices are expected to fall by approximately 2%, with deeper declines projected in Ontario and British Columbia. The agency anticipates a gradual recovery beginning in 2026 as global trade conditions improve and economic confidence returns.

The CMHC’s Summer 2025 Housing Market Outlook suggests that lasting United States–Canada trade tariffs are exerting significant pressure on the broader economy. As of late June 2025, these tariffs are expected to reach their peak in the second half of the year before tapering off by mid-2026. The agency now predicts a modest recession for Canada in 2025, followed by a slow recovery of gross domestic product (GDP) in early 2026.

Trade frictions, combined with inflationary pressures and rising unemployment, are already leading to reduced business investment. According to CMHC, firms impacted by tariffs are scaling back hiring, and global demand continues to soften. Domestic inflation is forecast to exceed 3% by mid-2026 due to increased costs linked to supply chain disruptions and import tariffs.

Despite slightly more favourable borrowing costs, this uncertainty continues to suppress homebuyer activity. Mortgage interest rates have declined in the first half of 2025, and the five-year fixed rate is expected to stabilise at around 5.5%. Variable rates, which track the Bank of Canada’s policy rate, remain comparatively attractive.

New construction has slowed in several provinces, most notably Ontario and British Columbia, where developers are increasingly hesitant to launch new projects amid falling presales, tightening credit conditions and lower demand. Many condominium developments have been delayed, cancelled or restructured as rentals.

Multi-unit housing starts remain historically elevated in Quebec, Atlantic Canada and the Prairie provinces, although the national average is declining. In the low-rise segment, modest gains are expected in Quebec, Manitoba and Alberta, while Ontario continues to face headwinds due to high construction costs and limited affordability.

CMHC warns that “the combination of rising material prices, subdued investor activity and ongoing uncertainty is creating a risk environment for both buyers and builders.”

Even as borrowing rates moderate, many Canadians remain priced out of the housing market. Mortgage rates, while down from their 2023 peak, have returned to historical spreads over the central bank rate. The CMHC notes that construction costs remain high, partly due to ongoing tariffs on steel, lumber, and other essential building materials.

As a result, the agency expects affordability to remain a key barrier to ownership, especially in urban centres with elevated property values.

The rental sector has shown signs of softening as new supply enters the market and demand moderates. Vacancy rates are rising slightly in major cities, and although rents continue to increase, the pace has slowed. A combination of weaker job markets, slower household formation and reduced immigration is placing downward pressure on rental demand.

This shift is most evident in cities such as Toronto, Vancouver, and Montreal, where substantial rental and condominium completions are expected to further ease tight conditions.

CMHC projects that conditions will begin to stabilise in 2026 as tariffs recede and economic growth resumes. However, housing starts are likely to respond slowly due to lingering caution among developers and persistent financing constraints. The overall trajectory points to a gradual return to balance rather than a rapid rebound.

Canada’s demographic outlook remains unchanged, with lower immigration targets expected to slow economic growth through the forecast horizon.

The housing market is thus entering a period of adjustment, shaped by international trade developments, evolving monetary policy, and shifting demographic dynamics.

Canada’s housing market slowdown mirrors broader global economic trends. Several advanced economies are experiencing similar contractions due to rising interest rates, weakening consumer sentiment and prolonged trade frictions.

The country’s heavy reliance on international trade, particularly with the United States, has heightened the domestic impact of tariff escalations. As a result, housing activity in Canada remains sensitive to both external policy developments and internal constraints.

While a gradual rebound is expected beginning in 2026, the CMHC cautions that the road to full recovery will depend on improving investment sentiment, better affordability conditions and continued macroeconomic stability.