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Hardest hit by unaffordability and condo overbuilding, the extended GTA—The Golden Horseshoe — suffered the most in the downturn and is expected to suffer the most from the US tariffs. The auto and steel sectors have already endured substantial layoffs, and household surveys suggest that the fear of being laid off in the next year has risen meaningfully.
Parts of BC have also seen a decline in activity, with prices falling, but not to the same extent as in Ontario. Balanced, if sometimes tight, conditions are driving property values higher in most of the Prairies, Quebec and parts of Atlantic Canada. In contrast, high inventory is depressing values in Ontario and British Columbia. Toronto experienced what we believe will be a temporary pause in August, following its gradual upturn.
These developments are in line with our view that rebuilding market confidence will support a slow recovery in the second half of 2025 and set the stage for stronger demand in 2026. There is pent-up demand for housing, and sellers are motivated. Many have been on the market for months, and reality has seeped in. Prices have fallen.
Local data shows that the MLS Home Price Index has fallen again in Toronto, Hamilton, Calgary, Edmonton, the Fraser Valley, and Vancouver—all of which are being weighed down by abundant inventory.
Strong construction has contributed most to the inventory build-up in Calgary and Edmonton.
The Toronto area took a breather in August after four months of solid advances. Home resales dipped slightly by 1.8% from July, seasonally adjusted, with continued softness in condos weighing on activity. Resales were up 2.3% year-over-year.
Falling interest rates, recent price drops, higher inventory and easing trade war concerns will gradually drive up activity.
The mild and broad price correction continued last month. The area’s composite MLS HPI edged 0.1% lower from July seasonally adjusted to $978,100—extending a year-long downtrend.
The condo price index fell the most, -7% from a year ago, but all categories saw a correction, including single-detached family homes (-5.6%).
We expect property values to continue falling while the market regains a firmer footing. But, affordability—while improving—will remain a big issue.
The economic backdrop shows signs of stress as labour markets have weakened and excess capacity is rising. The two most recent labour reports showed employment losses in both July and August, totaling more than 100,000 positions, while the jobless rate hit 7.1% last month, up by half a percentage point since January. The economy contracted by 1.6% in the second quarter—the most significant decline since the pandemic — reflecting a considerable drop in exports. Business investment is also weak, as is residential construction.
Recent economic weakness will likely outweigh the bank’s concerns about firm core inflation over the past few months. A broad range of underlying price pressures showed some cooling.
The average of the Bank of Canada’s two preferred core measures decelerated to 3.05%, from 3.1% in July. The three-month moving average of these core rates held steady at 2.52%.
Shelter inflation slowed to 2.6%, while CPI excluding food and energy decelerated to 2.4%. CPI excluding eight volatile components and indirect taxes held steady at 2.6%. Still, the share of components within the consumer price index basket that are rising by 3% or more — another key metric closely watched by policymakers — rose to 39.1%, from 37.3% in July.
The Bank of Canada cut the policy rate by 25 bps on September 17, taking the overnight rate to 2.5%--half the level posted at the high of 5%. The central bank is likely to cut rates one or two more times this year. The Governing Council meets again on October 29 and December 10.
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