With green shoots appearing in the Canadian housing market – sales volumes are up 6.6% year-over-year – where are values heading in the short-term?
Should you buy now before everyone jumps back into the market on a wave of renewed confidence?
The Royal Bank of Canada (RBC) says there are now encouraging signs for the market – a sentiment shared by the Canadian Real Estate Association (CREA).
“Prospective buyers are re-entering the market as economic fears ease and lower interest rates gain traction,” says the RBC in its new analysis.
“We expect this gradual recovery to continue in the second half of 2025, setting the stage for stronger demand in 2026.”
The RBC projects a 7.9% jump in home resales next year.
While short of the pre-Covid five-year national average of 511,000 sales, it believes as many as 504,000 deals are possible in 2026.
Two very different forces are now driving the turnaround in the real estate market.
The fear of US tariffs originally designed to significantly damage our economy has eased, at least for the time being.
Just as significantly, the Bank of Canada (BoC) has been aggressively cutting interest rates. After a peak of 5% back in May 2024, it has reduced the cash rate seven times and has been sitting at 2.75% since March.
Its Governing Council resisted any temptation to cut again at its last meeting, saying the unpredictability in the magnitude of US tariffs had clouded the Government’s economic guidance.
The RBC analysis aligned with this view, stating “several constraints” would temper a full recovery of the real estate market. It cited problem areas, including a fragile labour market, reduced immigration targets and affordability challenges of the real estate market.
“Our forecast anticipates the BoC will hold its policy rate steady at 2.75% through 2026,” it said. “Longer term rates have also started drifting slightly higher as bond markets price out further monetary easing.”
Even though the CREA reports an annual growth of 6.6% in sales volumes, the Royal Bank of Canada was far from sanguine about price trends, mainly due to the troubled markets of Ontario and British Columbia.
It said: “We anticipate prices will decline in the latter half of 2025 and into 2026 with Ontario and B.C. experiencing the steepest drops due to high inventory levels and strong competition among sellers.”
The Prairies, Quebec and parts of Atlantic Canada could see modest gains because of a more balanced supply-and-demand dynamic.
In a sign that buyers continue to have a rare opportunity before values begin to recover, the RBC forecast a 0.7% decrease in values next year, cancelling out the gains likely to have been achieved this year.