Canada faces a period of economic uncertainty as shifting trade policies and lower immigration targets create unpredictable conditions for businesses, consumers, and the housing market.
The latest Housing Market Outlook (HMO) from the Canada Mortgage and Housing Corporation (CMHC), released on February 5, outlines key risks and projections for the years ahead.
Economic growth is expected to be modest in 2025, with improvements in 2026 and 2027. However, the outlook remains highly uncertain due to potential U.S. trade tariffs, which could reach up to 25% on Canadian exports. If imposed, these tariffs may lead to investment uncertainty, a weaker Canadian dollar, lower export revenues, job losses, and higher inflation—factors that increase the risk of a recession. The CMHC outlines three possible economic scenarios, with varying levels of impact depending on the extent of U.S. trade actions and their consequences for the Canadian economy.
Lower immigration targets for 2025–2027 will also influence economic activity. Slower population growth could reduce consumer spending and labor demand, leading to a temporary rise in unemployment before conditions improve in 2026 and 2027. The Bank of Canada is expected to cut interest rates in response to these challenges, with variable-rate mortgages seeing the most significant reductions.
The housing market is set for an uneven recovery. Lower mortgage rates and new mortgage rules introduced in 2024 should unlock pent-up demand, particularly in more affordable housing segments. Resale homes are expected to attract increased interest as they offer quicker availability compared to new builds. The condominium apartment market, however, is expected to lag, especially in regions reliant on investor activity.
Housing starts are projected to slow from 2025 to 2027, primarily due to reduced demand for condominium apartments. However, rental apartment construction will remain high before easing in 2027. Ground-oriented homes, such as row houses and detached homes, may see modest gains, particularly in more affordable regions.
Rental markets are expected to stabilize as vacancy rates rise, slowing rent growth. However, rental affordability will improve only gradually, with more significant changes occurring later in the forecast period. Lower immigration levels and increased homeownership among renters will contribute to reduced rental demand.
Regional variations will play a crucial role in housing market dynamics. While unaffordable markets like Ontario and British Columbia will see slower sales growth, Alberta and Quebec are expected to lead the recovery. Housing starts in Ontario are likely to decline due to weaker investor demand, while British Columbia may experience a more gradual slowdown. Alberta, where homebuyers are primarily residents rather than investors, is expected to be less affected.
CMHC’s analysis presents alternative economic scenarios. In a low-growth scenario, higher U.S. tariffs could trigger a recession, delaying housing recovery and leading to further affordability challenges. In contrast, a high-growth scenario, with fewer trade barriers and stronger government spending, could accelerate economic and housing market improvements.
CMHC will release more detailed housing market outlooks for major Canadian cities at the end of February 2025, providing further insights into regional trends and risks.
