Canada’s Economic Landscape in Year Two of the Second Trump Presidency
As Canada enters the second year of a second Trump presidency, the nation emerges largely unscathed economically. However, concerns linger about the future. In a recent exploration by The Globe and Mail, economists, analysts, and investors were invited to share insights on what charts will be pivotal as we move toward 2026. Below, we delve into key topics that may shape Canada’s economy in the near future.
The Housing Market Correction
Long Time Running
Robert Kavcic, Senior Economist, BMO Capital Markets
In 2022, the housing correction was identified as a long-term challenge rather than a temporary dip. Factors that drove home prices higher have abated, signaling a significant recalibration of the real estate market. Negative borrowing costs have vanished, and speculative growth expectations have diminished. The aging millennial population is shifting away from first-time home purchases, while immigration has slowed, resulting in a gradual resetting of residential valuations. This reset signifies that Canada’s housing market is in for a protracted correction, and we are not yet through the eye of this economic storm.
Household Formation vs. Housing Stock
David Doyle, Head of Economics, Macquarie Group
Traditionally, Canada’s housing stock has kept pace with household formation. However, projections suggest an imbalance on the horizon as immigration policies lead to minimal household growth. In contrast, housing supply continues to rise, marking a historic misalignment. This discrepancy is expected to be addressed through diminished construction activity and gradual restoration of housing affordability. Ultimately, these changes may redirect investment focus away from speculative residential construction towards more productive economic avenues.
The Surge in Rental Properties
Start Me Up
Bradley Saunders, North America Economist, Capital Economics
There has been a notable increase in the construction of build-to-rent (BtR) properties, spurred by strong demand and government-supported financing initiatives. The trend is expected to persist despite recent declines in immigration, primarily because of favorable financial conditions for developers. Remarkably, BtR projects have surpassed the construction of new homes and condos for the first time. However, a cautious outlook remains as the impact of reduced immigration on rent growth looms large.
Inventory Overload
Bryan Yu, Chief Economist, Central 1 Credit Union
The Canadian housing market exhibits a two-speed dynamic. Major urban centers like Toronto and Vancouver continue to struggle with low sales and declining prices, while other regions experience rapid price increases. A substantial increase in inventory has suppressed prices, necessitating reductions in both resale and new-unoccupied housing units to stabilize the market. Doing so will restore developer confidence and support necessary construction to preempt future supply constraints.
The Rental Boom and Its Implications
The Rental Wave
Ben Rabidoux, Founder, Edge Realty Analytics
Canada is currently witnessing an unprecedented uptick in rental construction, with nearly 180,000 units under construction. This surge is crucial, especially as the federal government anticipates a cessation of population growth. This means the rental vacancy rate could climb significantly, potentially approaching levels unseen since the early 1990s. As rental inventory expands amid a stagnant population, concerns over rising vacancies could reshape the rental market landscape.
Affordability Challenges
Robert Hogue, Assistant Chief Economist, RBC Economics
Recent interest rate cuts have contributed to marginal improvements in housing affordability in key cities such as Toronto, Vancouver, and Calgary. However, the future is uncertain as the Bank of Canada is expected to maintain steady interest rates through 2026. As a result, the challenge of affordability remains formidable, keeping many prospective homeowners in a challenging position to enter the market.
The Broader Economic Context
Goods Grief
Arlene Kish, Director, S&P Global Market Intelligence
The 2025 federal budget introduced by Prime Minister Mark Carney aims to bolster industries adversely affected by tariffs, especially manufacturing. The current labor demand fluctuations within goods-producing industries highlight emerging challenges, particularly in auto manufacturing. While efforts are underway to secure investments and enhance trade relationships, an immediate impact on labor demand seems unlikely due to existing economic pressures.
Conclusion: Building a Resilient Economic Future
As Canada anticipates its economic trajectory through 2026 under the shadow of a second Trump presidency, the evolving landscape poses both opportunities and challenges. From housing corrections to rental surges and broader economic adjustments, the insights provided by leading economists underscore the complexity of navigating this dynamic market. Policymakers, investors, and the general public must remain vigilant and adaptable as the nation works towards a more resilient and prosperous future.
Explore More
For further insights on specific economic aspects such as job market trends, fiscal policies, and investment strategies, consult The Globe and Mail’s ongoing coverage, which will keep you informed as Canada charts its economic path.
