Housing market in Canada adjusts to a changed situation, resembling the previous norms
The Canadian housing market is displaying signs of recovery in 2025, with rising home sales and a gradual return to pre-pandemic conditions. However, economic uncertainty, higher borrowing costs, and affordability issues continue to cast a shadow over the market.
Robert Hogue, assistant chief economist at RBC, suggests that while there is still uncertainty from the U.S., a degree of energy is returning to the housing market recovery [1]. This optimism is supported by the Bank of Canada's decision to hold interest rates, which followed a significant increase in 2024 [2].
However, the higher borrowing costs from previous rate hikes continue to weigh on affordability. Allegritti, director of research and communications at Royal LePage, notes that Canadians have adapted to the new normal of borrowing rates [2]. Despite this adaptation, the housing market faces a cautious outlook.
In early 2025, U.S. tariffs on most Canadian goods introduced further economic uncertainty, particularly impacting home sales in British Columbia, where sales dropped by nearly 8% year-over-year [2]. This tariff dispute caused some buyers to pull back, disrupting the previously recovering momentum.
The effects of the COVID-19 pandemic continue to impact the market. The initial low rates and shifting demand fueled a housing boom, but the subsequent rise in interest rates and economic instability dampened activity. Now, the market is slowly stabilizing towards what experts call a "new normal" that resembles pre-pandemic conditions but with slightly more supply and time for buyers to make decisions [5].
Provincially, Ontario and British Columbia have experienced notable price declines of about 2.9% and 2.4% respectively in 2025, with sales also expected to decrease overall by about 3% nationally for the year [1][3]. However, there is an expectation of a rebound by 2026, as supply gluts from pre-construction projects ease and demographic demand persists, especially in large metros like Toronto and Vancouver [3].
National home sales rose 2.8% in June and 3.5% in May, indicating a gradual recovery [4]. Economists and real estate experts suggest that the housing market is returning to a state resembling the pre-COVID-19 pandemic "old normal" [4]. However, buyers may need to adjust their expectations, according to Mary Sialtsis, a licensed mortgage broker in Ontario [4].
Sialtsis also notes that potential buyers are not making offers due to perceived lack of favorable conditions [4]. Meanwhile, some mortgage brokers in Canada are still seeing people entering the market despite concerns over U.S. tariffs and the economy [1].
Robert Hogue notes that positivity and growing confidence will benefit the housing market in the long-term, especially as RBC does not expect any further rate cuts [1]. Despite the challenges, the housing market in 2025 is cautiously optimistic, with a full recovery projected for 2026 [1][2][3][5].
Interestingly, the housing market in Saskatoon is experiencing a strong summer, with sellers needing to adjust their expectations based on comparable sales in their neighborhood [6]. This regional difference underscores the complexities and nuances of the Canadian housing market.
In conclusion, while the Canadian housing market is showing signs of recovery, it is still facing challenges from economic uncertainty, higher borrowing costs, and affordability issues. The market is expected to continue its gradual recovery, with a full recovery projected for 2026.
References: 1. RBC Housing Market Report 2. Bank of Canada Interest Rate Announcement 3. CREA Housing Market Report 4. Royal LePage Housing Market Report 5. Canadian Real Estate Association Housing Market Report 6. Sialtsis Mortgage Corporation News
Investors may find opportunities in the Canadian housing market, as it gradually recovers in 2025, despite ongoing challenges. However, this recovery is expected to face hurdles from economic uncertainty, higher borrowing costs, and affordability issues, casting a cautious outlook for the real-estate sector.
Meanwhile, the Bank of Canada's decision to hold interest rates and RBC's optimistic outlook serve as light at the end of the tunnel, signifying a potential return to the pre-pandemic finance landscape in 2026.
