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No housing market meltdown in sight despite Trump tariff threats

No housing market meltdown in sight despite Trump tariff threats

CMHC projects home sales, prices will rebound in 2025 – but more severe tariffs than expected could complicate the picture

No housing market meltdown in sight despite Trump tariff threats

By Fergal McAlinden
05 Feb. 2025

Falling mortgage rates and new mortgage rule changes are expected to help spark a rebound in home prices and sales in the coming years, although the recovery could be an uneven one – and housing starts are set to continue slowing between now and 2027.

That’s according to Canada Mortgage and Housing Corporation (CMHC), whose housing market outlook for the year ahead highlighted the “significant uncertainty” to the Canadian economy of threatened US tariffs but said improving affordability would boost homebuyer prospects in its medium scenario for a potential trade war.

That projection assumes US tariffs of 25% on 10% of Canadian goods and retaliatory measures by Canada, with lower immigration in the coming years also likely to contribute to “modest” economic growth this year before improving in 2026 and 2027.

But a tariff dispute of that intensity wouldn’t crater Canada’s housing market, CMHC suggested. “Despite the economic headwinds… we expect housing market activity in Canada to improve,” the agency’s top economists wrote. “The combination of lower mortgage rates and changes to mortgage rules introduced in 2024 should unlock pent-up demand from homebuyers previously priced out of the market.

“However, some of these homebuyers may face longer loan terms, higher interest costs over the duration of the loan and larger downpayments as prices continue to rise.”

The federal government tweaked mortgage rules last year to allow expanded access to 30-year amortizations for first-time buyers and Canadians purchasing newbuilds, while it also hiked the insured mortgage cap to $1.5 million in a bid to improve purchasing power.

Millennials are likely to remain a key driver of housing demand in 2025, CMHC said, with a decline in remote work and stepping up of companies’ return-to-office efforts potentially seeing that buyer cohort prioritize being closer to jobs and boosting sales in large urban markets.

Affordability challenges show no signs of easing in major cities

However, the affordability picture isn’t positive across the board. CMHC’s report said Alberta and Quebec would see sales reach “historically high levels” with prices potentially surging – but Ontario and British Columbia sales could stay below 10-year averages because of current eyewatering home prices and the outsized impact there of lower immigration.

The condo market’s struggles also show little sign of easing. Activity in that sector is projected to continue lagging – particularly in regions more dependent on investor activity. “Investors who bought pre-construction units to rent out are increasingly selling as costs rise faster than rental incomes,” CMHC said.

“We expect listings to continue to increase, driven by record new condominium apartment completions in 2025 and softening rental markets.”

Millions of new units are required by 2030 to restore affordability across Canada’s housing market, but housing starts are projected to slow further in the years ahead, according to CMHC.

While starts are set to remain above their 10-year average, that slump in condo construction is expected to weigh heavily against the construction outlook as investor interest wanes and families turn toward more “family-friendly” properties.

Tariff threat continues to loom large over Canada’s economy

CMHC’s medium expectation for a trade war would see the housing market stave off threats of a crash – but its worst- and best-case scenarios don’t exactly suggest a housing meltdown is imminent, either.

Higher tariffs on Canadian exports could see job losses and a 2025 recession, the agency said, while a trade war could result in a short-term jump in inflation but a lower Bank of Canada policy rate to boost the economy.

While a recession would delay a housing market recovery, it would also see pent-up demand swell, according to CMHC. Fewer homes may be built, but the economy would be likely to rebound by the end of 2026 as population growth spurs further sales.

In the opposite scenario, in which the US would impose milder and short-lived tariffs, higher incomes and stronger consumer confidence could boost spending. In that case, “stronger declines in borrowing costs make homeownership more attainable,” CMHC’s report said.

“More homes are built thanks to better financing and business conditions. Stronger job and income growth combined with lower mortgage rates make homeownership more accessible. Higher demand pushes home prices up more quickly.”

The depth and severity of potential US tariffs remains to be seen, with US president Donald Trump and Canada’s prime minister Justin Trudeau striking a deal on Monday to stave off a trade war for at least 30 days.