Experts describe a market defined by caution: falling prices, low sales volumes and no sense of urgency on either side of the deal. (Lance McMillan/Toronto Star via Getty Images) ·Lance McMillan via Getty Images
Sixteen months of interest rate cuts should have rattled Canada’s housing market. Instead, the sector barely moved — and with the Bank of Canada (BoC) expected to hold steady this Wednesday, industry experts say the shadow of the trade war, not interest rates, will dictate where the market goes next.
The BoC cut its policy rate by 275 basis points from June 2024, taking it from 5% to 2.25%. Mortgage rates followed: Fixed-rate loans have fallen sharply from mid-2024 highs, and variable rates have recently dipped below fixed rates.
However, according to data from the Canadian Real Estate Association, sales activity and median prices are more or less equal to where they were at the start of 2024.
“This Bank of Canada rate has come down massively from its peak,” said Ron Butler, broker at Butler Mortgage. “Sales are still terrible and prices continue to drop. It’s certainly a massive part of the narrative, but [the BoC] they do not control the market at all.”
CIBC Deputy Chief Economist Benjamin Tal says the housing market “has not really responded” to deep interest rate cuts, “and I think it’s not just about interest rates.”
The cuts, he says, have kept Canada out of recession, but have been overwhelmed by broader economic forces. “The economy as a whole is still struggling. The fog of uncertainty about Trump is a major factor affecting the consumer psyche.”
Even if the BoC were inclined to cut again – which analysts widely doubt – Tal says the traditional link between cheaper loans and housing demand has weakened. “Interest rates are secondary here,” he said.
Butler, Tal and others describe a market defined by caution: prices are falling, sales volumes are low, 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 biggest declines occurred in entry-level segments such as apartments and houses.
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Pain is not distributed equally. Royal LePage CEO Phil Soper notes that while the national numbers appear stagnant, they mask a “compression” of the market. More affordable regions such as Edmonton and Montreal have seen significant activity, while the traditional engines of Canadian real estate — Toronto and Vancouver — have stagnated, dragged down by prices that still remain out of reach for many.
The weakness of the entry-level market, Soper says, stems from the absence of the group that normally kicks off a housing cycle. “The big missing piece … is the first-time home buyer,” he said, with polls showing trade war uncertainty holding them back.
Existing owners, who might otherwise trade, are being “mismatched,” Butler says, because their real estate agents are telling them their homes are worth less than they expected. And renters hoping to buy “still can’t make the math work,” he adds, with prices too high relative to incomes.
“For most first-time homebuyers, prices have yet to come down or their incomes have yet to rise,” he said. “That’s it.”
At the same time, Butler says the investor class has evaporated. “Absolutely nobody buys a property to rent, to flip, to renovate. Zero. It’s gone.” Soper adds that federal caps on foreign students and temporary workers have eliminated the rental demand that apartment investors rely on.
The result is a market with fewer buyers, more hesitation, and deals blocked by the kind of conditions and inspections that disappeared during the pandemic boom. “The buyer is much more discerning, much more attentive, much more discerning,” Butler said.
All three experts point to the US-Canada trade conflict as the central force weighing on economic confidence.
Tal says the freeze on business investment provides a useful parallel for understanding household behavior. “You can cut interest rates to zero – they don’t invest because you don’t know what’s going to happen tomorrow with a rate,” he said. One CEO told him the only thing they needed was clarity: “Give me a number. So at least I know where I am.”
Beyond the external threat of tariffs, Tal highlights a specific domestic headwind that will keep a lid on the recovery in 2026: a tougher mortgage renewal environment.
He says the 2025 renewal wave was “much ado about nothing” because borrowers could refinance, but 2026 will be different. Homeowners who are renewing next year are locked into low rates in 2021, and in markets like Ontario and BC, their home values have fallen since then, eliminating the refinancing cushion they could have relied on.
Tal estimates this affects about 5.5% of outstanding mortgages, a group it says will face a “significant” payment shock of 40% or more.
Both Soper and Tal say that even without a resolution to the trade conflict, the psychological shock it imposed will wear off — just as pandemic fears did in late 2020, with the market rebounding long before vaccines arrived (though that trend was also driven by a move out of cities).
“People get used to it, people adapt, people adapt,” Tal said. On the downside, that may draw some buyers back.
Tal and Soper both see U.S. political realities leading to a potential end to the trade conflict next year — an outcome, Tal says, that would lead to a significant improvement in the housing market. Change, however, is generally expected to be gradual. Butler sees no chance of a price increase next year. Soper expects transaction volume to continue to grow only gradually. Tal sees 2026 as a “transition year” – slow in the spring, better in the fall and still heavily influenced by the disappearance of tariff uncertainty.
“Uncertainty is a major factor,” Tal said. “And that’s why this fog is so thick.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow X @jmacf.
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