The Bank of Canada’s rate cuts have failed to lift the housing market. Here’s where it goes next
Experts describe a market defined by caution: prices are falling, sales volumes are decreasing, 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 rate cuts should have brought Canada’s housing market back to life. Instead, the sector has moved little, and while the Bank of Canada (BoC) is expected to remain steady on Wednesday, industry experts say the shadow of the trade war, not interest rates, will determine where the market goes next.
The BoC has reduced the policy rate by 275 basis points since June 2024, from five percent to 2.25 percent. Mortgage rates have followed suit: Fixed-rate borrowing has fallen sharply from mid-2024 highs, and variable interest rates have recently fallen below fixed interest rates.
But sales activity and average prices are roughly near early 2024 levels, according to data from the Canadian Real Estate Association.
“The Bank of Canada rate has taken a big fall from its peak,” said Butler Mortgage broker Ron Butler. “Sales are still abysmal and prices continue to drop. That’s certainly a big part of the narrative, but [the BoC] “He has no control over the market at all.”
Benjamin Tal, deputy chief economist at CIBC, says the housing market “hasn’t really responded” to deep interest rate cuts, “and I think it’s not just about interest rates.”
He says the cuts have kept Canada out of recession but are being crushed by broader economic forces. “The economy as a whole is still struggling. The fog of uncertainty surrounding Trump is a major factor affecting consumer psychology.”
Even if the central bank is inclined to cut interest rates again (something analysts widely doubt), Tal says the traditional link between cheap borrowing and housing demand is weakening. “Interest rates are secondary here,” he said.
Butler, Tal, and others describe a market defined by caution: prices are falling, sales volumes are decreasing, and there is no sense of urgency on either side of the transaction. National benchmark prices are still below the level they were at when the easing cycle began. Some of the heaviest declines were in entry-level segments such as condos and townhomes.
The pain is not evenly distributed. Royal LePage CEO Phil Soper notes that although national numbers appear stagnant, they are masking a “squeeze” in the market. While there is significant activity in more affordable areas like Edmonton and Montreal, the traditional engines of Canadian real estate, Toronto and Vancouver, are stagnating and drifting downwards, with prices still out of reach for many.
Soper says the weakness in the entry-level market is due to the absence of the group that normally kicks off the housing cycle. “The biggest missing piece is first-time homebuyers,” he said, with surveys showing trade war uncertainty holding them back.
Butler says existing owners who might otherwise trade are “dejected” because real estate agents are telling them their home is worth less than they expected. And tenants hoping to buy add that “the math still doesn’t work” because prices are too high relative to incomes.
“For most first-time homebuyers, prices still need to fall or their incomes need to increase,” he said. “This is it.”
Butler also says the investor class is evaporating. “Absolutely no one is buying a property to rent, flip, renovate. Zero. Gone.” Soper adds that federal restrictions on foreign students and temporary workers have frustrated the rent demand that apartment investors rely on.
The result is a market with fewer buyers, more hesitancy, and transactions bogged down by conditions and controls that disappeared during the rise of the pandemic. “The buyer is much more discreet, much more careful, much more selective,” Butler said.
All three experts point to the US-Canada trade dispute as a key force weighing on economic confidence.
Tal says the freeze on business investment offers a useful parallel for understanding household behavior. “You can cut interest rates to zero; they’re not investing because you don’t know what’s going to happen tomorrow with a tariff,” he said. One CEO told him all they needed was clarity: “Give me a number. So at least I know where I am.”
Beyond the threat of external tariffs, Tal notes one particular domestic headwind that will limit the recovery in 2026: a more challenging mortgage renewal environment.
He says the 2025 renewal wave is “a lot of noise about nothing” because borrowers will be able to refinance, but 2026 will be different. Homeowners renewing next year locked in the lowest rates in 2021, and home values have fallen since then in markets like Ontario and BC; This eliminated the refinancing cushion they could rely on.
Tal estimates this affects around 5.5 per cent of outstanding mortgages and says this group will face a “significant” payment shock of 40 per cent or more.
Both Soper and Tal say that even if a solution to the trade dispute is not found, the psychological shock it creates will fade as the market recovers long before vaccines arrive (though that trend was also driven by a move out of cities), just as pandemic fears did in late 2020.
“People are getting used to it, they’re adapting, they’re adapting,” Tal said. This may marginally put off some buyers.
Tal and Soper think U.S. political realities will lead to a potential end to the trade dispute next year; Tal says this result will lead to a significant improvement in the housing market. However, change is generally expected to be gradual. Butler sees no possibility of a price increase next year. Soper expects transaction volumes to continue to increase gradually. Tal predicts 2026 as a “transition year”; It is slower in the spring, better in the autumn, and yet it is mainly shaped by whether the tariff uncertainty disappears.
“Uncertainty is an important factor,” Tal said. “That’s why this fog is so thick.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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