Quick Takes:
CREA now projects 469,503 home sales in 2025, three percent below last year, showing that higher mortgage costs and tariff risk are restraining demand.
The five-year Government of Canada yield is above three percent, and June inflation at 1.9 percent signals no rate cut in July.
Until core inflation cools and yields dip below three percent, the federal stress test will keep reducing borrowing power and delaying a broad price recovery.
Canadian real estate investors woke up on Tuesday to a new forecast from the Canadian Real Estate Association: 469,503 homes are expected to change hands in 2025, 3 percent fewer than in 2024, marking the second downgrade this year. CREA’s shift marks a sharp reversal from its 8 percent growth call in January and a flat outlook by April; the weakness is concentrated in British Columbia, Alberta, and Ontario.
Toronto data illustrate the slowdown. Urbanation’s Q2-2025 survey counted only 502 new condo sales in the Greater Toronto Area, 69 percent below a year earlier and 91 percent below the 10-year average. Completed but unsold inventory reached a record high of 2,478 units—approximately 60 months of supply—with average asking prices down 6 percent year over year to $1,212 per square foot.
Nationally, sales are stable but sluggish: June transactions rose 2.8 percent from May and 3.5 percent from a year earlier. CREA also expects the average home price to ease 1.7 percent to roughly C$677,000, about C$10,000 below its April estimate as buyers face higher financing costs.
Bond Market Signals and Mortgage Rate Pressure
The Bank of Canada ended a series of rate cuts in early June and has held the overnight target at 2.75 percent, citing tariff uncertainty and core inflation close to 3 percent.
Market pricing reflects that stance. The implied probability of a rate change at the July 30 meeting is below 6 percent, and Bankers’ Acceptance futures still point to a year-end target near 2.75 percent. Because lenders price most fixed mortgages on that benchmark plus a funding spread, retail borrowing costs have barely changed.
Rates at these levels matter because the federal stress test forces borrowers to qualify at the contract rate plus 2 percentage points. A household shopping at 4 percent must prove it can service payments at 6 percent, cutting maximum buying power by roughly 3 percent for every 25 bps rise in mortgage rates.
External events are keeping yields from falling. On July 10, President Donald Trump announced a 35 percent tariff on Canadian goods effective August 1. The announcement hit confidence and added risk to Canadian forecasts. Bond investors demanded a higher term premium to guard against slower trade and sticky inflation, reinforcing an upward drift in yields that began after a stronger U.S. CPI report earlier in the week.
Inflation and Trade Risks Dictate Next Policy Step
The standoff between slow housing demand and firm financing costs is not new. During the global financial crisis of 2008–09, the Bank of Canada dropped the overnight rate from 4.5 percent to 0.25 percent—a cut of 425 bps. Posted five-year mortgage rates fell from 6.21 percent in September 2008 to 4.62 percent by May 2009, and sales rebounded within a year.
A similar pattern appeared in early 2015 after an oil price crash. Two cuts brought the policy rate to 0.50 percent. Five-year mortgage rates slipped from 3.96 percent to about 3.71 percent, and resale volumes recovered, especially in Ontario and British Columbia.
By contrast, in 2022 consumer prices ran above 8 percent, and policymakers raised the policy rate from 0.25 percent to 4.25 percent in ten months. Five-year mortgage costs increased, and 2023 sales fell nearly 20 percent from the prior spring.
The pattern is clear: when inflation is low, the Bank can cut and support housing; when inflation rises, housing must absorb tighter credit. Core inflation today is stubborn but not spiraling, growth is slowing, and tariff threats cloud the outlook. A rate shift could revive activity quickly, but its timing depends on inflation data and trade talks.