Experts describe the market as defined by caution: prices are falling, sales volumes are down, and there is no sense of urgency on either side of the transaction. (Lance McMillan/Toronto Star via Getty Images) ·Lance McMillan via Getty Images
Sixteen months of interest rate cuts should have reinvigorated Canada’s housing market. Instead, the sector has barely moved – and with the Bank of Canada (BoC) expected to hold steady this Wednesday, industry experts say the shadow of a trade war, not interest rates, will determine where the market goes next.
The BoC cut its policy rate by 275 basis points from June 2024 to 2.25 percent from five percent. Mortgage rates have followed suit: Fixed-rate lending has fallen sharply from a mid-2024 high, and variable rates have recently fallen below fixed rates.
However, according to data from the Canadian Real Estate Association, sales activity and average prices are more or less where they were in early 2024.
“This Bank of Canada rate has come down substantially from its peak,” said Ron Butler, a broker at Butler Mortgage. “Sales are still terrible, and prices are coming down. It’s definitely a big piece of the story, but [the BoC] It doesn’t control the market at all.”
CIBC deputy chief economist Benjamin Lake says the housing market “hasn’t really responded” to the deep interest rate cuts, “and I think it’s not just about interest rates.”
He says the cuts kept Canada out of recession, but were overwhelmed by broader economic forces. “The economy as a whole is still struggling. The fog of uncertainty about Trump is a major factor affecting consumer sentiment.”
If the BoC were inclined to cut again – which some analysts widely doubt – Lake says the traditional link between cheap borrowing and demand for housing has weakened. He said, ‘Here the interest rate is secondary.
Butler, Lake, and others describe a market defined by caution: prices are falling, sales volumes are falling, and there is no sense of urgency on either side of the transaction. National benchmark prices are still below where they were when the easing cycle began. Some of the heaviest declines have been in entry-level segments like condos and townhouses.
Pain is not evenly distributed. Royal LePage CEO Phil Soper noted that while national figures appear stable, they mask a “shrinkage” in the market. More affordable areas like Edmonton and Montreal have seen meaningful activity, while the traditional engines of Canadian real estate — Toronto and Vancouver — have stalled, dragged down by prices that are still out of reach for many.
The weakness in the entry-level market, Soper says, stems from the absence of groups that typically start the housing cycle. “The big missing piece … is first-time home buyers,” he said, adding that surveys show trade war uncertainty is holding them back.
Existing owners who might otherwise trade are “kind of out,” Butler says, because their realtors tell them their home is worth less than they thought. And renters hoping to buy “still can’t do the math,” he adds, adding that prices are too high relative to incomes.
“For first-time home buyers, prices still have to come down or their incomes have to go up,” he said. “That’s it.”
At the same time, Butler says the investor class has evaporated. “Absolutely no one bought the property to rent it, flip it, renovate it. Zero. Gone.” Soper adds that federal caps on foreign students and temporary workers have dampened rental demand that condo investors rely on.
The result is fewer buyers, more hesitation, and a transaction market bogged down by the kinds of conditions and inspections that were lost during the pandemic boom. “Buying is very prudent, very careful, very good,” Butler said.
All three experts pointed to the US-Canada trade conflict as a central force weighing on economic confidence.
Tal says that stability in business investment provides a useful parallel for understanding household behavior. “You can cut interest rates to zero – they won’t invest because you don’t know what’s going to happen tomorrow with tariffs,” he said. One CEO told her the only thing she needed clarity on: “Give me a number. So at least I know where I am.”
Beyond the external threat of tariffs, Tal points to a particular domestic headwind that will put a lid on the recovery in 2026: a difficult mortgage renewal environment.
He says the 2025 renewal wave was “pretty much ado about anything” because borrowers could refinance, but 2026 will be different. Homeowners who renew next year are locked into rock-bottom rates in 2021, and in markets like Ontario and B.C., their home values have fallen — eliminating the refinance cushion they rely on.
Lake estimates that this affects about 5.5 percent of outstanding mortgages, a group that would face a “significant” payment shock of 40 percent or more.
Both Soper and Tal say that even without a resolution to the trade conflict, the psychological shock it inflicted will fade — as pandemic fears did in the late 2020s, with the market rebounding long before a vaccine arrived (though that trend also shifted out of cities).
“People get used to it, people adjust, people adapt,” Lake said. At the margin, this may hold back some buyers.
Both Lake and Soper see U.S. political realities driving a potential end to the trade conflict next year — a conclusion Lake says will lead to significant improvements in the housing market. Change, however, is generally expected to be gradual. Butler sees no chance of a price increase next year. Soper expects the transaction volume to increase gradually. Lake predicts 2026 as a “transition year” — late in the spring, good in the fall, and still largely shaped by whether tariff uncertainty will go away.
“Uncertainty is a major factor,” Lake said. “And that’s why this fog is so thick.”
John McFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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