Almost half of Canadians looking to purchase a home this year say the trade dispute with the United States has prompted them to postpone. According to the latest Royal LePage survey, 49% have put their homebuying plans on hold. Of those, 37% are concerned about a potential increase in the cost of living, 30% are worried about making a big purchase at a time of political and economic uncertainty, and 14% are holding out because they expect home prices to decline as a result of the conflict.
Just as real estate markets in Canada saw a brief rebound, it would appear the threat of tariffs has sent home sales nosediving. The housing market is witnessing an unusual situation wherein home sales have been plummeting despite lower interest rates and falling house prices. And experts say they do not see a meaningful rebound as long as the trade uncertainty lingers.
“I would say that there’s madness on the market. Rate cuts so far have not driven up an uptick in home buying.” says Nicole Lechter, real estate analyst for RSM Canada. “So, although interest rates are coming down, potential buyers are stepping off the court and sidelining themselves amid tariff fears, job losses and debt doubts.”
Sales, which had been well below average for the last three years, had just started seeing a rebound toward the end of 2024. But that didn’t last very long, as the uncertainty from tariffs led to a nearly 10% plunge in home resales nationwide from January to February—their biggest monthly drop in close to three years.
“The Bank of Canada had cut interest rates many times since June, and we were starting to see some traction in the housing market. The markets were recovering. Unfortunately, the trade wars seem to have put a big pause on that recovery,” says Robert Hogue, assistant chief economist at RBC. “Affordability is still very stretched. The fall in interest rates should be a factor to stimulate demand at this point. Significant interest rate cuts opened the door for more buyers to enter the market. At that same time, we also saw more supply in the market, inventories had returned to much more normal levels after years … that provided more options for buyers out there and got the market on a recovery path. But these are entirely obscured by this trade war.”
Tariffs and uncertainty have resulted in resale activity plummeting 12.0% nationwide since January, including a 4.8% drop between February and March. Along with declines in each of the three previous months, national home sales are now down 20% from their recent high recorded last November, according to the Canadian Real Estate Association.
Meanwhile, the supply of existing homes for sale is continuing to grow. New listings increased 3% from February to March, and the number of active listings reached a five-year high last month. “Inventory is up about 30%. What we’re seeing right now is that buyers are having an abundance of options, but the housing market is just really left without its usual roster of motivated players, because confidence and morale is now down. And that’s really a big shift that we’re seeing in 2025,” says Lechter.
Pent-Up Demand Contends With Tariff Uncertainty
“Up until this point, declining home sales have mostly been about tariff uncertainty. Going forward, the Canadian housing space will also have to contend with the actual economic fallout. In short order, we’ve gone from a slam dunk rebound year to treading water at best,” writes CREA senior economist Shaun Cathcart in a note.
Despite significant interest rate cuts after several hikes in the prior two years, Hogue says interest rates are probably not even the foremost concern for homebuyers right now, and that people are more worried about their job prospects. He thinks that if it weren’t for the tariff threat, the drop in interest rates and lower mortgages would certainly allow more people to consider buying a home: “There’s tremendous pent-up demand right now. The problem is that for that demand to be unlocked, affordability has to improve significantly.” The affordability crisis has existed since long before the trade war.
Hogue writes in a note that the market pullback is mainly concentrated in southern Ontario and British Columbia, where persistent affordability challenges made the recovery especially vulnerable to a loss of confidence. Weakening labor markets and tariffs threatening to strike southern Ontario’s economy hard has significantly soured market sentiment. Home resales are down 21% in Ontario and 17% in BC, the country’s most expensive markets, in the past two months. Odds are prices there will continue to slump in the near term, since supply/demand conditions strongly favor buyers. In fact, Hogue believes we would expect larger drops if current imbalances persist.
However, there have been a few outliers where strong demand paired with low supply has led to price appreciation. “Canada’s housing market entered 2025 with mixed momentum,” writes Phil Soper, president and CEO of Royal LePage. “In Ontario and British Columbia, softer sales reflect consumer caution in the face of economic headwinds. In contrast, markets in Quebec, the Prairies, and Atlantic Canada are demonstrating surprising resilience, buoyed by pent-up demand, falling interest rates, and chronically low inventory. This uneven performance is a hallmark of a market in transition.”
Outlook Remains Highly Uncertain
“Interest rates are falling, but the appetite for debt has also fallen right now. What we’re seeing is that the financial distress for Canadians is the highest it’s been since Q4 2020,” Lechter says. “Canadians are still recovering from rate shock.”
Overall, Canada’s housing market outlook remains highly uncertain. Swings in US trade policy could dramatically alter the picture. Hogue says: “Further escalation in the trade war could certainly deepen and broaden the slump. Conversely, any development toward lifting the trade war fog would help shore up confidence and open the door to some of the substantial pent-up demand. The stimulative effect of lower interest rates would return once confidence rebuilds.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
