Canadian Housing Report: Navigating Complexities of Tariffs, Interest Rates, and Regional Variability

Escalating trade tensions between Canada and the United States have cast a substantial shadow over the Canadian housing market. According to the Canadian Real Estate Association’s (CREA) housing report released February 18th, national home sales declined by 3.3% month-over-month, largely driven by uncertainty over potential U.S. tariffs. A February 18th Financial Post article further amplified this sentiment, highlighting that the drop in sales and surge in new supply caused the national sales-to-new listings ratio to fall to 49.3%, directly attributing this sharp decline to rising anxieties over the trade dispute and subsequent erosion of consumer confidence. The article notes that CREA chair James Mabey called a possible trade war “a major dark cloud on the horizon” in a release. 

A February 18th Reuters article underscored the severity of these concerns by noting that home sales weakened on uncertainty caused by the possibility of U.S. tariffs, significantly elevating fears of recession and prompting buyers and sellers alike to hesitate, thereby suppressing market activity. Similarly, a March 6th Globe and Mail article highlighted the tangible economic impact of such tariffs. It explained that the Big Three U.S. automakers would need to move production back to the States, while also emphasizing that increased construction costs, driven by pricier imported building materials, are projected to further strain affordability and dampen buyer enthusiasm.

“The standout trends to begin the year were a big jump in new supply at an uncommon time of year, as well as a weakening in sales which only showed up around the last week of January,” said Shaun Cathcart, CREA’s Senior Economist in the CREA monthly housing report. “The timing of that change in demand leaves little doubt as to the cause – uncertainty around tariffs.”

Therefore, tariffs could exacerbate existing vulnerabilities as well as introduce broader economic anxieties, including potential job losses and rising inflation pressures, intensifying buyer caution and altering market dynamics nationwide. Consequently, industry participants are closely monitoring developments in U.S.-Canada trade relations, recognizing that resolution or further escalation could significantly influence the trajectory of the Canadian housing market throughout 2025.

In a late January article, BNN Bloomberg noted that in response to these trade concerns and weakening consumer sentiment, the Bank of Canada proactively reduced its key interest rate by 25 basis points to 3% at the end of January. TD Bank Chief Economist Beata Caranci highlighted how Canada’s housing market is exceptionally responsive to changes in borrowing costs, suggesting this move would alleviate debt burdens and improve affordability. Similarly, Phil Soper, CEO of Royal LePage, anticipated increased purchasing power and a potential surge in spring market activity resulting from the rate cut. 

Mortgage experts indicate that while borrowing costs have indeed fallen, prospective buyers remain wary due to unresolved trade tensions, potential inflationary pressures, and uncertainty surrounding employment stability. These broader economic anxieties continue to constrain consumer confidence, delaying the full impact of the central bank’s intervention. Nonetheless, the lower interest rates have created more favorable conditions for first-time buyers and those most sensitive to mortgage affordability, setting the stage for a potential rebound in housing activity later in the year should trade disputes ease and confidence recover. In addition, IG Wealth Management head of mortgage, insurance and banking Alana Riley, told BNN Bloomberg that sellers may be able to “find buyers more willing to negotiate” following market variability.

However, the anticipated spike in activity has yet to fully materialize. In a February 12th article, Storeys reports a cautious stance among analysts who warn against viewing declining interest rates as a singular driver of real estate recovery. Factors such as reduced immigration targets, inflationary pressures, and ongoing trade uncertainties continue to moderate the anticipated rebound, making the timing of any full-scale resurgence difficult to predict. In the article, Canada Mortgage and Housing Corporation (CMHC) Deputy Chief Economist Kevin Hughes notes, “There’s the rate, but also other conditions that surround the rate as well, and that’s what we’re also looking at.”

Additionally, the persistent imbalance between rising supply—highlighted by a significant influx of new listings—and hesitant buyer demand further complicates the picture, limiting upward price momentum and dampening overall market enthusiasm. Until broader economic uncertainties, particularly those related to U.S.-Canada relations, are resolved, the benefits from lowered interest rates may remain muted, prolonging a period of cautious buyer and seller sentiment across the national housing market.

National averages mask considerable regional variation. CREA data indicates distinct disparities, notably highlighting softer conditions in British Columbia and Ontario, where listings have increased substantially. Toronto specifically illustrates this divergence, as the Toronto Regional Real Estate Board (TRREB) reported a significant 27.4% decline in February home sales year-over-year alongside a 5.4% YoY rise in new listings. This increase in listings, coupled with a notable sales slowdown, has contributed to expanded inventory levels, thereby shifting market dynamics toward conditions more favorable to buyers. Again, the political situation remains a major consideration:  “Not only do existing policy makers and those vying for high public office need to make clear their direction on housing supply and affordability, but they also need to be clear on how they intend to tackle issues related to trade and the economy,” TRREB Chief Executive John DiMichele mentions in the report. “Clear direction will go a long way to strengthen consumer confidence.”

Further amplifying this perspective, a March 5th Toronto Star article underscored these dynamics, describing the ongoing trade tensions as “a bucket of cold water” thrown over the GTA market, directly linking tariff anxieties and economic uncertainty with reduced buyer confidence and moderated pricing. Quoting from the TRREB report, Chief Market Analyst Jason Mercer said, “On top of lingering affordability concerns, homebuyers have arguably become less confident in the economy.” Conversely, CREA highlighted relative resilience in markets such as the Prairies, Quebec, and across the East Coast where prices and sales activity have proven steadier, reflecting regional differences in economic vulnerability to trade issues and interest rate fluctuations. 

As noted by the CREA, January’s sharp rise in new listings (an 11% monthly increase) signals proactive seller behavior, potentially anticipating economic downturns linked to trade issues. This influx of listings, coupled with slowing sales, reduced the national sales-to-new-listings ratio to 49.3%, tipping the market closer to a buyer’s advantage. With months of inventory rising to 4.2 months nationally, market conditions appear balanced yet increasingly favorable to buyers in several regions. 

According to Reuters, the rapid monthly rise in new listings during January was one of the highest seasonally adjusted increases recorded since the late 1980s, underscoring how swiftly homeowners are responding to geopolitical uncertainties. 

TRREB and the Toronto Star noted that softer market conditions, as reflected in declining sales and increased inventory in regions such as the Greater Toronto Area, further emphasize the shift in negotiating power toward buyers, who now have expanded options and potentially greater leverage on pricing. The confluence of increased seller urgency and cautious buyer sentiment, driven largely by ongoing trade tensions, suggests that these supply-demand dynamics may persist until clarity on U.S.-Canada economic relations emerges.

A late January International Monetary Fund (IMF) blog provides critical global context, noting that persistently low real interest rates have been instrumental in supporting elevated asset prices internationally, including real estate. However, such prolonged low-rate environments inherently carry risks of inflated asset valuations and increased market vulnerability. 

For Canada’s housing market, these risks are amplified by current geopolitical concerns, particularly U.S. tariff pressures, which have already begun to influence market confidence and buyer behavior. The IMF points out that if real interest rates were to rise abruptly, this could trigger a significant revaluation of assets, potentially resulting in sharp price corrections and broader financial instability. 

Thus, as noted by BNN Bloomberg, Canadian policymakers face a complex task: leveraging reduced borrowing costs to stimulate economic growth and housing market activity, as recently exemplified by the Bank of Canada’s January rate cut, while simultaneously ensuring such policies do not inadvertently fuel asset bubbles or exacerbate future market corrections.

CREA’s market outlook cautiously suggests a rebound in home sales activity later in 2025, contingent upon the resolution or easing of trade tensions and a corresponding stabilization in broader economic indicators. This projection aligns with insights from BNN Bloomberg, where experts emphasize that the Bank of Canada’s strategic interest rate reduction could eventually translate into increased affordability and renewed consumer confidence, provided external economic disruptions subside. 

However, the Financial Post underscores the fragility of such predictions, noting that the recent sharp drop in sales reflects deep-seated anxieties surrounding tariffs and their potential to trigger inflation and job instability. Until trade relations between Canada and the United States become more predictable, these fears may continue to restrain buyers from making significant financial commitments. Storeys highlights that while the central bank’s accommodative monetary policy supports affordability, the real estate market’s resurgence will depend heavily on multiple intertwined factors, including restored immigration targets and broader economic confidence. 

Looking ahead, Canada’s housing market stands at a critical juncture. As the country moves deeper into 2025, the potential resolution—or further escalation—of trade tensions with the United States will likely serve as a primary driver of housing market confidence and activity. The Bank of Canada’s careful balancing of accommodative monetary policies with caution regarding inflated asset prices adds another layer of complexity, requiring policymakers to remain agile and responsive to unfolding economic indicators.

Another question is, tariffs aside, how will the growing “51st state” threats from Trump affect the Canadian housing market? In a March 13th ABC News article, former Canadian Prime Minister Justin Trudeau was quoted as saying “What he [Trump] wants is to see a total collapse of the Canadian economy because that’ll make it easier to annex us.”

For both buyers and sellers, this period of uncertainty demands careful attention to regional market dynamics and an understanding of how broader national and international trends intersect locally. Ultimately, Canada’s housing trajectory beyond 2025 hinges on how effectively stakeholders adapt to these evolving economic and geopolitical realities, turning uncertainty into a catalyst for prudent, sustainable growth.

In our next article, HAVEN will take a further look at the numbers: how Canada’s housing market is reacting to prevailing economic factors influencing real estate.