Canada’s housing market falls back as tariffs and rate fears bite

Canada's housing market experienced a setback in September, ending a four-month streak of slight recovery, as growing tensions in trade with the United States and increasing expectations for interest rate hikes from the Bank of Canada (BoC) affected buyer activity. According to a report by RBC Economics, national resales decreased by 2.3% on a seasonally adjusted basis compared to the previous month. Additionally, the MLS Home Price Index dropped by 0.4% from August, now standing at 3.5% lower than this time last year, and new listings fell by 1.8%.

Shaun Cathcart, a senior economist at the Canadian Real Estate Association (CREA), noted, "After a four-month period of modestly positive trends in demand, supply, and prices, many housing markets across Canada experienced a decline in September." He attributed this downturn to the recent increase in fixed mortgage rates and the widespread expectation of a BoC rate hike by the end of the year.

Rachel Battaglia, an economist at RBC, remarked, "The decline in September reflects the uneven recovery we anticipated as households adapt to changes in trade policy and rising borrowing costs." She explained that bond yields had started to rise in anticipation of BoC rate increases, which in turn pushed fixed-rate mortgage rates higher ahead of any official move by the central bank.

Fausto Gaudio from IC Savings expressed concern over the disconnect between home prices and incomes, which he believes is making it increasingly challenging for first-time buyers to enter the market. He emphasized the need for a broader reset in housing affordability.

RBC forecasts a cumulative increase of 1% in the BoC's overnight rate throughout 2027. Battaglia explained, "We expect the BoC to raise the overnight rate by a total of one percentage point in 2027, which is significantly less aggressive than the previous tightening cycle when rates surged from 0.25% to 5% within a year." She also noted that any rate hikes would likely depend on an improving Canadian economy, suggesting that the gradual increase should not lead to the same drastic decline in resales as experienced in the past.

Mathieu Laberge, chief economist and senior vice-president at Canada Mortgage and Housing Corporation (CMHC), shared a similar outlook during the Mortgage Professionals Canada National Conference in Calgary. "I don’t foresee rates increasing anytime soon," he stated, although he acknowledged that increases in 2027 are likely if the economy strengthens.

Regional disparities in the housing market are becoming more pronounced across Canada. The Greater Toronto Area saw a significant month-over-month decline in resales of 5.3%, while Greater Vancouver experienced a 6.2% drop. Victoria faced the steepest national decline, with a staggering 25% decrease in resales compared to the previous month, as reported by RBC.

Despite the downturn in volume, tighter new listings in various Ontario and Vancouver markets have helped stabilize prices. Meanwhile, Quebec appears to be arriving later to the affordability challenges, with Montreal beginning to show signs of pricing pressure as new listings increase. In the Prairie provinces—Winnipeg, Regina, Saskatoon, and Edmonton—markets are gradually loosening, though most still lean in favor of sellers. Atlantic Canada is experiencing a mixed scenario, with Halifax and Newfoundland and Labrador reporting resale increases since April 2026.

Phil Soper, the president and CEO of Royal LePage Canada, commented that the current stagnation in the market is driven by a lack of confidence rather than fundamental issues. "It seems that nothing can shift Canadians from their current standstill while the trade war with the United States continues," he noted. "All the fundamentals suggest that a more active housing market is possible, but our research indicates that first-time homebuyers, in particular, are feeling very anxious about the ongoing trade conflict."

RBC's outlook remains cautious but not overly pessimistic. Battaglia concluded, "In this environment, we anticipate that the housing market recovery will persist, albeit gradually, with fluctuations along the way."