Canadian Housing Market: Insights and Projections

The Canadian housing market is grappling with a series of challenges that are reshaping its landscape, with experts from Oxford Economics providing critical insights. The firm anticipates that the current slump in housing sales will persist into the next year, largely influenced by economic uncertainty and trade tensions.

A Struggling Resale Market

According to Michael Davenport, a Senior Economist at Oxford Economics, the Canadian housing market is witnessing “some very low levels of unit sales across the country.” Recent statistics indicate that resale activity has dipped approximately 15% below the five-year average. This downtrend is driven by increasing borrowing costs and waning consumer confidence, coupled with a general reluctance to engage in the housing market during uncertain times.

Davenport further elaborated that the most expensive markets, including Greater Toronto and Greater Vancouver, are experiencing a price correction estimated at 8–10% peak-to-trough. The sales-to-new-listings ratio is hovering around the 50% mark, indicating a balanced market but representing a substantial decline from the high activity levels during the pandemic.

New Construction Trends

While the resale market struggles, new construction appears to be holding up somewhat better, albeit with a downward trend on the horizon. Oxford Economics projects that national housing starts will decrease from 245,000 units in 2024 to around 225,000 units in 2025. Furthermore, forecasts suggest that quarterly starts will likely drop to 218,000 (seasonally adjusted annual rate) in the final two quarters of the year—a rate reminiscent of early pandemic levels.

Nevertheless, the completion of numerous condo projects launched in previous years is adding to the supply in a market already cooling. Tony Stillo, Director of Canada Economics at Oxford Economics, candidly described the current condo market as a “mess,” noting that prices will likely need to decrease for units to move, potentially requiring investors to accept losses.

Affordability Concerns

Affordability continues to pose a significant barrier for prospective buyers. Stillo has highlighted an increasing reliance on family funds for down payments among buyers, showcasing the challenges many face in entering the housing market. The need for affordable housing solutions has never been more pressing, as issues surrounding excess supply and declining prices collide with consumer financial pressures.

Trade Risks and Economic Uncertainty

In addition to domestic market conditions, trade tensions between Canada and the U.S. have contributed to mounting economic uncertainty. Oxford Economics has reported a notable decrease in exports to the U.S., with total goods exports plummeting by approximately 10% month-over-month in April, although there was a partial rebound in May. Coupled with tariff-driven price pressures, this has led to a forecasted contraction in Canadian GDP through the latter half of 2025.

The potential introduction of a new flat tariff rate of 35%, affecting key sectors such as metals and pharmaceuticals, adds another layer of complexity. While Canadian goods have received a temporary reprieve due to existing USMCA compliance, the looming threat of increased tariffs is a concern for many economists.

Limited Room for Monetary Policy Adjustments

Given the current situation, the Bank of Canada finds itself with limited maneuverability regarding interest rates. With rates hovering near what the Bank considers neutral, any potential cuts might only range from 0.25 to 0.50 percentage points. This constraint complicates efforts to stimulate economic growth, making the path forward increasingly uncertain.

The Bigger Picture: Global Economic Forces

Beyond individual market factors, Canada’s economic outlook is closely tied to international relations and global economic policies. Oxford describes the ongoing trade war as at a critical juncture, where a potential deal could be reached by July 21, or we might shift toward a more regulated trade environment.

Moreover, the firm anticipates additional details regarding Canada’s increased defense spending plans to emerge in the fall, aiming to address both domestic and international pressures. Stillo has suggested that while this may lead to temporary deficits, it might lay the groundwork for a more robust economic future.

Canadians’ inclination toward international travel is currently in decline, but Stillo believes this will be a short-term issue. The longer-term economic impact of reduced travel could be detrimental for both Canada and the U.S., especially in a more managed trade scenario.

Exploring New Trade Opportunities

In the face of escalating U.S. tensions, Canada is contemplating alternative trading partnerships with countries such as China, India, and those in the European Union. However, these efforts come with their own complexities and uncertainties. The energy export sector may serve as a cornerstone in these discussions, but as Stillo points out, diversifying trade will take considerable time.

Conclusion

The Canadian housing market stands at a pivotal moment, influenced by a multitude of factors ranging from local market trends to global economic conditions. As uncertainty looms over trade policies and economic performance, stakeholders in the Canadian housing market must be equipped to navigate the challenges ahead while remaining vigilant to emerging opportunities. The potential for economic recovery exists but will require careful strategizing amidst the current landscape.