Canada's Housing Market Shows Signs of Recovery, But Challenges Remain

📅 4 days ago

A new RBC Economics report indicates that Canada's housing market is beginning to recover, with home resales increasing and prices stabilizing, although challenges such as high inventory and external economic pressures linger.

OTTAWA — A recent analysis by RBC Economics suggests that Canada’s housing market is starting to show signs of recovery. According to the report, home resales have experienced a positive trend since April, with inventory levels stabilizing and prices beginning to show signs of recovery. The report indicates that there is potential for gradual improvement in the market, driven by enhanced affordability and better job prospects that may boost consumer confidence.
Robert Hogue, assistant chief economist at RBC, noted that the future of the housing market will largely depend on how many sidelined homebuyers enter the market. "We estimate that there are potentially hundreds of thousands of Canadians who have delayed their home-buying plans over the past few years due to the significant rise in ownership costs. Many of these individuals are stuck in rental situations longer than they would prefer or are postponing their plans to upsize or downsize their current homes," Hogue explained.
The report highlights that the recovery process is expected to vary across different regions in Canada. Prolonged corrections in markets such as Ontario and British Columbia have had lasting effects on consumer sentiment. Conversely, Hogue pointed out that more resilient markets may not see substantial growth due to steady interest rates and lower population growth.
Particularly, the condominium market in cities like Toronto and Vancouver is anticipated to take longer to rebound, as high inventory levels and a lack of investor interest are likely to continue suppressing prices well into the next year.
Despite the recent uptick in activity, the report states that the turnaround has come too late to mitigate the overall decline in home resales and prices experienced throughout the year. It projects that home resales will decrease by 3.6 percent this year, totaling approximately 453,200 units, while the benchmark price index is expected to drop by 2.3 percent to $794,200, largely due to weak market conditions observed during the winter and early spring.
Looking ahead, RBC Economics forecasts a more visible recovery next year, with sales anticipated to rise by 6.7 percent to around 483,600 units, and the benchmark home values expected to increase by 0.8 percent to $800,700. However, the report cautions that such an increase is unlikely to transform the market significantly, as the overall conditions will still be considered soft, with resales remaining substantially lower than pre-pandemic levels and home values only slightly above cyclical lows.
Interest rates are not expected to alleviate affordability challenges, as borrowing costs are projected to remain at their lowest for this cycle. RBC Economics anticipates that the Bank of Canada will maintain interest rates through the end of this year before a potential increase next year.
The report also highlights that a comprehensive recovery is not guaranteed, given various risks facing the Canadian economy. Hogue mentioned that recent escalations in the U.S. trade war and ongoing conflicts in the Middle East could undermine consumer confidence. "We have documented four false starts since the beginning of 2023, where external events, such as trade wars or spikes in energy prices, have disrupted what seemed to be a promising, albeit gradual, improvement. This situation may not be an exception," Hogue stated.
On August 22, the U.S. imposed tariffs of 50 percent on about five percent of Canadian exports, prompting Canada to plan retaliatory counter-tariffs set to begin on September 8. Additionally, U.S. President Donald Trump has threatened to impose steeper tariffs on automobiles and auto parts starting January 1, 2027.

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