Market Overview: Mixed Signals Amid Economic Uncertainty

The Canadian real estate market is showing mixed signals this spring, with nationwide housing starts surging but sales activity remaining subdued. Economic uncertainties, particularly related to U.S.-Canada trade tensions, continue to impact buyer confidence across the country.

Housing Starts Surge Despite Overall Market Caution

According to the Canada Mortgage and Housing Corporation (CMHC), April 2025 saw a remarkable 30% month-over-month increase in the seasonally adjusted annual rate (SAAR) of housing starts. The actual housing starts in population centers over 10,000 increased 17% year-over-year, marking the highest number of actual housing starts for any April on record.

However, experts caution that this surge may reflect natural fluctuations in multi-unit starts rather than a significant sector turnaround. The first four months of 2025 still show a 3% decrease compared to the same period last year, indicating that the housing construction sector remains challenged overall.

Regional Disparities in Construction Activity

The housing construction landscape shows striking regional differences:

Declining Regions:

• Ontario: 10% decrease year-over-year, 31% drop year-to-date
• British Columbia: 3% decrease year-over-year, 22% drop year-to-date
• Toronto: 25% decrease year-over-year, 52% drop year-to-date

Growing Regions:

• Quebec: 55% increase year-to-date
• Saskatchewan: 94% increase year-to-date
• Newfoundland: 47% increase year-to-date
• Montreal: 64% increase year-over-year, 82% increase year-to-date

Toronto’s Housing Market: Buyer’s Market Emerging

GTA Construction Challenges

The Greater Toronto Area (GTA) housing construction market faces significant challenges. Housing starts in Toronto have plummeted 25% year-to-date, with purpose-built rental starts down 37%. Planning applications are down over 50% province-wide in the past two years, and Toronto’s crane count has decreased by more than 20%.

The slowdown in construction activity is also impacting employment, with construction employment declining from 604,000 people in 2022 to 565,000 at the end of 2024.

Land Acquisition Drops Significantly

Developers appear to be taking a cautious approach to future developments. Residential land development deals in the GTA have decreased by 15% in volume and 18% in dollar value from 2023 to 2024. This decline is even more dramatic compared to the 2021 peak, with 46% fewer deals and 60% less capital invested.

The first quarter of 2025 has been particularly weak, with only 47 sales totaling $398 million – lower than any quarter in the past five years. High-rise development sites are experiencing the sharpest decline in transactions and value.

Sales and Prices Trending Downward

Toronto Regional Real Estate Board (TRREB) data shows sales decreased 23% year-over-year in April, marking the lowest April sales since 2010 (excluding April 2020 during pandemic lockdowns). Meanwhile, new listings increased 8.1% year-over-year, creating a clear buyer’s market with a sales-to-new-listings ratio of just 29.7%.

The average selling price of $1.1 million represented a 4.1% decrease compared to April 2024 and a 0.7% drop from March 2025. All property types experienced both price and sales declines, with condos seeing the steepest drops in both categories.

Condo Market Under Pressure

TD Economics forecasts that the GTA condo market will continue to face downward pressure, with resale prices projected to fall approximately 10% in 2025. This decline is part of a broader correction that could see prices drop 15-20% from their Q3 2023 peak by year-end.

Multiple factors are contributing to this market weakness:

• Slowing population growth due to more restrictive immigration policies
• Declining investor interest as rental rates fall
• Persistent affordability challenges
• Economic uncertainty from trade tensions
• Weakening job market

National Real Estate Trends

Sales Activity Remains Subdued

The Canadian Real Estate Association (CREA) reports that home sales in April 2025 fell 9.8% compared to April 2024. Only 44,300 residential properties were sold across Canada in April, down from 49,135 in the same month last year, with a slight 0.1% month-over-month decrease on a seasonally adjusted basis.

New listings fell 1% month-over-month, though the total inventory of 183,000 properties is 14.3% higher than a year ago. The national average home sale price in April was $679,866, representing a 3.9% decline from last year, while CREA’s home price index fell 1.2% from March.

U.S. Trade Relations Impacting Market Confidence

Economic uncertainty, particularly related to tariff tensions with the United States, is frequently cited as a primary factor dampening buyer enthusiasm. Industry experts note that many potential buyers are waiting for clarity on Canada’s trade relationship with the U.S. and its potential impact on employment before making purchasing decisions.

Canadian Investors Shifting Focus from U.S. to Domestic Markets

An interesting trend emerging is the withdrawal of Canadian real estate investors from the U.S. market amid rising tensions between the two countries. This shift could potentially redirect significant investment back into Canada’s housing market, particularly in recreational property sectors like Ontario’s cottage country.

Data shows that Canadian purchases of U.S. property have hit their lowest point in 15 years, with 81% of Canadians now favoring domestic investments over U.S. real estate.

Mortgage Trends

Rates Trending Upward Again

After a period when rates appeared to be becoming more affordable, both fixed and variable-rate mortgages are now trending in less favorable directions for borrowers. Fixed mortgage rates have increased by 10 to 20 basis points from their recent lows of around 3.64% for insured five-year mortgages.

Simultaneously, major banks including CIBC and Scotiabank have reduced their variable-rate discounts by 10 to 15 basis points, effectively increasing costs for new variable-rate borrowers despite no change in the Bank of Canada’s prime rate (which remains at 4.95%).

The “Magic Number” for Market Reactivation

Industry experts suggest that mortgage rates need to drop to 3% or lower to stimulate Canada’s housing market and motivate prospective homebuyers. Current five-year fixed-rate mortgages at 3.74% remain too high for many Canadians to enter the market.

A recent BMO survey confirms this sentiment, with 68% of prospective homebuyers indicating that current borrowing rates remain a stumbling block, and nearly 40% stating that rates needed to fall to 3% or lower before they would purchase or refinance.

First-Time Buyer Challenges

Family Support Increasingly Essential

The dream of homeownership is becoming increasingly difficult to achieve without family financial support. According to a BMO survey, nearly half (43%) of current homeowners report they couldn’t have purchased their first home without financial assistance from family members.

The survey highlights growing reliance on the “Bank of Mom and Dad,” with 27% of Canadians expecting support from parents or grandparents for housing costs, while 39% plan to provide financial assistance to their own children or grandchildren.

Alternative Approaches Gaining Traction

As affordability challenges persist, alternative approaches like shared homeownership are gaining popularity, particularly among younger generations:

• 45% would consider buying property with friends, family, or non-romantic partners
• 63% of Gen Z and 50% of Millennials would consider shared homeownership

Renting is also becoming more acceptable as a long-term option, with 60% of Canadians content with renting and not feeling pressured to buy.

Market Outlook

Short-Term Caution, Long-Term Optimism

The outlook for 2025 remains cautious, with TD Economics and other analysts expecting continued market softness. However, conditions are expected to improve in 2026 with the Bank of Canada’s anticipated rate cuts, pent-up demand, improved economic conditions, and reduced condo completions helping to balance the market.

Post-Election Activity

Following Canada’s recent federal election, some market segments have seen increased activity as sellers who had been waiting for election results are now bringing properties to market. However, sales remain inconsistent across price points, with some high-end properties languishing while others sell successfully.

Government Policy Impact

Recently announced government policies may eventually provide support to the housing market, including eliminating GST for first-time buyers on homes under $1-million, creating the “Build Canada Homes” agency to boost housing supply, and plans to cut development charges by 50%. However, their impact will likely be felt beyond 2026.

Conclusion

The Canadian real estate market continues to navigate challenging conditions, with regional disparities, economic uncertainties, and affordability issues creating a complex landscape. While some positive indicators like increased housing starts offer hope, the overall market remains cautious as buyers and sellers alike wait for more economic clarity and potentially lower interest rates.

For prospective buyers, particularly in major markets like Toronto, the shift to a buyer’s market presents increased negotiating power and more choices than seen in recent years. Those considering entering the market should carefully weigh current conditions against their personal financial situation and long-term housing goals.