Canada’s Housing Market in Charts
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BoC rate cuts should help a struggling housing market. But, the rebound will likely be moderate, and some segments like GTA condos are in for a longer slump. The rental market is also set to soften.
Canada’s housing market is dealing with numerous cross currents that figure to have a continued impact over the next year. While the Bank of Canada is cutting interest rates and prices are down, affordability is still challenging and the immigration taps are getting turned down. The following is a chart-based tour of the market as it stands now, and where it might be headed.
Timid Recovery Ahead: Housing activity has struggled so far this year despite Bank of Canada rate cuts. This partly reflects the severe dislocation that was allowed to build in the market during the pandemic boom, and partly reflects the fact that the bond market had already priced early rate cuts into fixed mortgage rates. As we see it, continued rate cuts through the spring should finally set the market on a firmer path overall through 2025, with sales volumes rising roughly 7% for the year, and prices creeping slowly higher at the national level. For the benchmark Canadian home price, the early-2022 highs are still a long way off—think years, not months. Construction activity looks to remain largely steady, with some downside risk from unsold inventory and slower population growth.
Ontario Still Adjusting: Variable market conditions continue to show through at the regional level. While Calgary’s market is still relatively tight, there has been a clear softening in recent months. A normalizing market balance has cooled price growth from a double-digit rate late last year to sub-3% annualized in recent months. That said, sellers’ markets persist across much of the Prairies, as well as Atlantic Canada, where relative affordability and inward migration flows continue to support demand. Vancouver and Montreal look mostly balanced, but the latter is outperforming and posting a better-than-average price performance over the past year—that appears to be accelerating. Ontario remains the soft spot, with buyers’ markets still scattered across various areas of the province. Toronto continues to see a wave of condo supply saturate the market. While scarcer single-detached housing has tempered the deterioration, the sales-to-new listings ratio in the city has now sunk to 35.5, the lowest level since the 2009 recession. Condo prices in the CMA are now down 7.5% y/y, the worst performance across the major segments/locations that we track.
Watch for Sub-4% Mortgage Rates: At the darkest hours in late-2023, Canadian mortgage rates were pushing toward 6%, so we’ve already seen a major turnaround on that front. We expect a steady stream of 25 bp rate cuts by the Bank of Canada through June 2025, which would carve another 125 bps off variable rates. This narrowing spread in rates will also begin to make variable-rate mortgages part of the conversation again. With most of this priced in already, the downside in fixed mortgage rates could be modest from here, although we suspect sub-4% rates should be on offer in the months ahead. Recall that sub-4% was the norm before this tightening cycle (rates pushed to about 3.75% by early 2019). For buyers waiting for ‘rates to fall’, that could be a trigger.
Valuations: We’re Not There… Yet: Sub-4% mortgage rates could be an important level for more than just market psychology. Affordability is still restrictive, but mortgage rates below 4% should allow more households to stretch into the market. In fact, if we plug 3.9% mortgage rates and a 30-year amortization into our affordability calculator, we get back into the realm of what was sustained pre-pandemic. Also, investors have been absent from the market because the arithmetic surrounding cap rates, borrowing costs and risk-free returns still don’t make much sense. From a cash flow perspective, sub-4% borrowing costs would let investors build principal again. We’re not there yet, but we’re getting closer.
Suddenly Too Much Supply? Active listings are elevated in many markets, and are sitting at record levels in the GTA. That’s more dramatically so in the condo market, where the combined stock of unsold new inventory and resale listings has never been higher. At the same time, demand is at recession-like levels, in part due to the absence of investors who were a major source of new sales activity earlier in the cycle. As this is happening, there are nearly 90,000 apartment units still under construction in the GTA, leaving a lot of supply yet to spill onto the rental and resale markets.
Immigration Gets Turned Down: Ottawa’s latest Immigration Levels Plan came with some significant changes that will curb net inflows in the coming years. Annual permanent resident targets will be cut to 395k in 2025, slowing further to 365k by 2027. That’s down from an expected 485k this year, and a meaningful shift down from previously-planned levels of 500k per year. Meantime, new temporary resident caps will seek to cut that group’s share of the population to 5% from 7.3%, resulting in net outflows of roughly 445k per year over the next two years. Hitting these targets might be a challenge, but it implies that overall Canadian population growth will run at about zero in 2025 and 2026. That would be a dramatic shift from above 3% today.
Rental Market Has Changed: When considering the amount of supply on the market today, and the pipeline of new completions still coming, it doesn’t take a wild imagination to see a world where vacancy rates rise and rents fall. Growth in average asking rent across Canada has slowed to just 2% y/y according to Rentals.ca, with outright declines seen in some markets. Because of lags in the way market rents filter into the CPI (rent control and slow basket turnover), this won’t be reflected immediately in the Canadian inflation numbers. But, conditions in the real world are softening fast, and Canadian inflation excluding shelter is less than 1% y/y.
Renewals are Manageable: Bank of Canada rate cuts are helping to dampen the risk of significant mortgage renewal shock. The most concerning vintage of mortgages were probably those taken out at exceptionally-low (sub-2%) interest rates during 2020 and 2021. While some analysts were yelling “fire” over this, we’ve been careful to remind that incomes can grow over five years, interest rates can come back down, and most of those borrowers were stress tested at rates well above what they were paying. Most of the uninsured mortgages from 2020 and 2021 would have been stress tested at 4.79% or 5.25%, depending on the timing. So, as we go through 2025 and 2026, the path of mortgage rates is on track to come in comfortably below that mark. That said, households will still have to make that higher payment, but that should mean less discretionary spending rather than delinquency.
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Robert Kavcic
Director and Senior Economist
Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing economic, fiscal and real estate trends in Canada. Robert regularly contribut…(..)
View Full Profile >BoC rate cuts should help a struggling housing market. But, the rebound will likely be moderate, and some segments like GTA condos are in for a longer slump. The rental market is also set to soften.
Canada’s housing market is dealing with numerous cross currents that figure to have a continued impact over the next year. While the Bank of Canada is cutting interest rates and prices are down, affordability is still challenging and the immigration taps are getting turned down. The following is a chart-based tour of the market as it stands now, and where it might be headed.
Timid Recovery Ahead: Housing activity has struggled so far this year despite Bank of Canada rate cuts. This partly reflects the severe dislocation that was allowed to build in the market during the pandemic boom, and partly reflects the fact that the bond market had already priced early rate cuts into fixed mortgage rates. As we see it, continued rate cuts through the spring should finally set the market on a firmer path overall through 2025, with sales volumes rising roughly 7% for the year, and prices creeping slowly higher at the national level. For the benchmark Canadian home price, the early-2022 highs are still a long way off—think years, not months. Construction activity looks to remain largely steady, with some downside risk from unsold inventory and slower population growth.
Ontario Still Adjusting: Variable market conditions continue to show through at the regional level. While Calgary’s market is still relatively tight, there has been a clear softening in recent months. A normalizing market balance has cooled price growth from a double-digit rate late last year to sub-3% annualized in recent months. That said, sellers’ markets persist across much of the Prairies, as well as Atlantic Canada, where relative affordability and inward migration flows continue to support demand. Vancouver and Montreal look mostly balanced, but the latter is outperforming and posting a better-than-average price performance over the past year—that appears to be accelerating. Ontario remains the soft spot, with buyers’ markets still scattered across various areas of the province. Toronto continues to see a wave of condo supply saturate the market. While scarcer single-detached housing has tempered the deterioration, the sales-to-new listings ratio in the city has now sunk to 35.5, the lowest level since the 2009 recession. Condo prices in the CMA are now down 7.5% y/y, the worst performance across the major segments/locations that we track.
Watch for Sub-4% Mortgage Rates: At the darkest hours in late-2023, Canadian mortgage rates were pushing toward 6%, so we’ve already seen a major turnaround on that front. We expect a steady stream of 25 bp rate cuts by the Bank of Canada through June 2025, which would carve another 125 bps off variable rates. This narrowing spread in rates will also begin to make variable-rate mortgages part of the conversation again. With most of this priced in already, the downside in fixed mortgage rates could be modest from here, although we suspect sub-4% rates should be on offer in the months ahead. Recall that sub-4% was the norm before this tightening cycle (rates pushed to about 3.75% by early 2019). For buyers waiting for ‘rates to fall’, that could be a trigger.
Valuations: We’re Not There… Yet: Sub-4% mortgage rates could be an important level for more than just market psychology. Affordability is still restrictive, but mortgage rates below 4% should allow more households to stretch into the market. In fact, if we plug 3.9% mortgage rates and a 30-year amortization into our affordability calculator, we get back into the realm of what was sustained pre-pandemic. Also, investors have been absent from the market because the arithmetic surrounding cap rates, borrowing costs and risk-free returns still don’t make much sense. From a cash flow perspective, sub-4% borrowing costs would let investors build principal again. We’re not there yet, but we’re getting closer.
Suddenly Too Much Supply? Active listings are elevated in many markets, and are sitting at record levels in the GTA. That’s more dramatically so in the condo market, where the combined stock of unsold new inventory and resale listings has never been higher. At the same time, demand is at recession-like levels, in part due to the absence of investors who were a major source of new sales activity earlier in the cycle. As this is happening, there are nearly 90,000 apartment units still under construction in the GTA, leaving a lot of supply yet to spill onto the rental and resale markets.
Immigration Gets Turned Down: Ottawa’s latest Immigration Levels Plan came with some significant changes that will curb net inflows in the coming years. Annual permanent resident targets will be cut to 395k in 2025, slowing further to 365k by 2027. That’s down from an expected 485k this year, and a meaningful shift down from previously-planned levels of 500k per year. Meantime, new temporary resident caps will seek to cut that group’s share of the population to 5% from 7.3%, resulting in net outflows of roughly 445k per year over the next two years. Hitting these targets might be a challenge, but it implies that overall Canadian population growth will run at about zero in 2025 and 2026. That would be a dramatic shift from above 3% today.
Rental Market Has Changed: When considering the amount of supply on the market today, and the pipeline of new completions still coming, it doesn’t take a wild imagination to see a world where vacancy rates rise and rents fall. Growth in average asking rent across Canada has slowed to just 2% y/y according to Rentals.ca, with outright declines seen in some markets. Because of lags in the way market rents filter into the CPI (rent control and slow basket turnover), this won’t be reflected immediately in the Canadian inflation numbers. But, conditions in the real world are softening fast, and Canadian inflation excluding shelter is less than 1% y/y.
Renewals are Manageable: Bank of Canada rate cuts are helping to dampen the risk of significant mortgage renewal shock. The most concerning vintage of mortgages were probably those taken out at exceptionally-low (sub-2%) interest rates during 2020 and 2021. While some analysts were yelling “fire” over this, we’ve been careful to remind that incomes can grow over five years, interest rates can come back down, and most of those borrowers were stress tested at rates well above what they were paying. Most of the uninsured mortgages from 2020 and 2021 would have been stress tested at 4.79% or 5.25%, depending on the timing. So, as we go through 2025 and 2026, the path of mortgage rates is on track to come in comfortably below that mark. That said, households will still have to make that higher payment, but that should mean less discretionary spending rather than delinquency.
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