Canadian Real Estate Faces Uncertainty Amid Economic Turmoil

The Canadian real estate market is experiencing significant challenges as economic uncertainties arise from external pressures, particularly related to trade. Following a period of cautious optimism in December 2024, when interest rates were expected to decline and buyers were anticipated to return in spring 2025, the landscape has shifted dramatically. Today, many stakeholders are left questioning whether there is any light at the end of the tunnel.

The turbulence in the market can be traced back to the resurgence of U.S. President Donald Trump and his fluctuating tariff policies. According to the News-Based Policy Uncertainty Index, which gauges economic uncertainty in Canada, the index experienced a sharp increase from a rating of 236 in October 2024 to 1,635 by March 2025. This marked rise coincided with Trump’s return, leading to heightened anxiety among consumers and investors alike.

Consumer confidence, a key driver of the housing market, has suffered as tariffs impact Canadian exports and threaten jobs. The housing sector, often the largest investment for households, is now in a state of stagnation. As uncertainty looms, buyers have become increasingly hesitant to enter the market, exacerbating the decline in both sales and prices.

Market Dynamics and Buyer Hesitation

The downturn in housing activity can be traced back to rising interest rates, which began to escalate in February 2022. Carl Gomez, chief economist at CoStar Group, notes that the rapid decline in sales has outpaced the fall in prices. As buyers adopt a wait-and-see approach, the fear of purchasing a depreciating asset has taken hold. “No one wants to buy a value-losing asset,” Gomez explained, emphasizing that prolonged buyer inactivity only heightens market uncertainty.

The trajectory of the housing market appears uneven. Gomez anticipates that the market is still undergoing a correction, as prices had previously inflated too rapidly. He predicts ongoing challenges for those who overbid during the competitive environment of the COVID-19 pandemic. While the single-family home segment remains relatively resilient, with prices holding steady, the condo market is facing sharp declines. The oversupply of condos, driven by investor demand, has resulted in significant price drops as investors retreat.

The Broader Economic Context

The commercial real estate landscape is also under strain, particularly within the office sector, which is grappling with high vacancy rates. Despite this, well-capitalized firms continue to support various commercial segments, helping maintain cash flow. Nonetheless, the overall economic outlook is dampened by the uncertainty surrounding U.S. trade policies.

Gomez argues that the Canadian federal government’s response has been delayed, suggesting that it is “two years too late” in addressing supply issues. While there was a push to increase supply when markets were constrained, the current oversaturation of condos—especially in urban centres like Toronto—calls for a more nuanced approach. The real challenge lies in the limited supply of single-family homes, which has persisted due to restrictive zoning and planning regulations.

As the housing market navigates through economic turbulence, the key to recovery will depend on how effectively Canada can address trade-related challenges. Confidence remains fragile, with prices still below early 2022 levels. The oversupply in the condo market will continue to exert pressure, leaving the road ahead uncertain.

Despite these challenges, experts suggest that once the economic landscape stabilizes, the Canadian housing market may find its footing again. For now, the focus remains on fostering conditions that can restore consumer confidence and stimulate demand in a sector critical to many households across the nation.