Canada Mortgage and Housing Corp. is forecasting a rebound in home sales and prices this year as homebuyers take advantage of improved borrowing conditions, but its outlook is clouded by the threat of widespread tariffs from the U.S.
The national housing agency said a trade war between Canada and the U.S., combined with factors such as reduced immigration targets, would likely slow the economy and limit housing activity, even as some households see improved buying power in the short-term.
While U.S. President Donald Trump announced a month-long pause on his plan to slap 25 per cent tariffs on Canadian imports earlier this week, uncertainty continues to linger, said CMHC deputy chief economist Kevin Hughes.
"There are tangible effects, but there also are sentiment effects as well," Hughes said in an interview.
"There is that investment uncertainty that is weighing on the future of business and also the Canadian dollar."
The agency's 2025 market outlook report said in a scenario where high tariffs were imposed, it would temporarily raise inflation while prompting the Bank of Canada to lower its key policy rate to support the economy.
In that scenario, it predicts a recession would prolong Canada's housing recovery, leading to more homebuyers delaying purchases and fewer homes being built.
If U.S. tariffs turn out to be more limited and shorter-lasting than previously thought, CMHC said better financing and business conditions would prompt more homes to be built and more accessible home ownership.
Despite those challenges, the report predicts the combination of lower borrowing costs and Ottawa's changes to mortgage rules will help unleash pent-up demand from those who have felt priced out of the market.
The federal government has raised the price cap for insured mortgages to allow more people to qualify for a mortgage with a down payment of less than 20 per cent.
Ottawa also expanded its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
Six straight cuts by the Bank of Canada to its key policy rate since last June have brought it down to three per cent.
The CMHC report noted the central bank is expected to further cut rates in 2025 to control inflation and support the economy amid new tariffs.
"Right now as we speak, we are not in a tariff situation, so we are in an economy where interest rates have gone down, which has been a boost for borrowing, not only for potential homeowners ... but also for investors," said Hughes.
The report said millennials, many of whom are first-time buyers, are currently driving housing demand. It added that as the trend of remote work declines, that demographic could prioritize being closer to jobs, boosting the sales recovery in larger urban markets.
While sales in the most unaffordable markets such as Ontario and B.C. will likely stay below 10-year averages, homes should change hands at "historically high levels" in Alberta and Quebec, with price growth outpacing national averages.
But Canada is set for a slowdown in housing starts over the next three years — despite remaining above their 10-year average — due to fewer condominiums being built, as investor interest lags and demand from young families wanes.
That trend could spell trouble for affordability over the long term, said Hughes.
"We have not seen the buildout of the much higher level of supply that is needed to restore affordability," he said.
"The supply is definitely necessary, but soon we're going to be asking the question, 'Well, if this doesn't occur, what is likely to happen?' Being priced out and settling elsewhere, or having housing conditions deteriorate."
Meanwhile, CMHC said an uptick in the number of first-time homebuyers and reduced immigration flows will lead to lower rental demand, higher vacancies and slower rent increases for the next three years.
It said rental apartment construction reached record levels in 2024 driven by government support, a rapidly growing renter population and strong rent growth at the time of planning.
It expects that momentum to continue this year, but softening market conditions may lead to fewer new rental projects by 2027.
"Despite being the more affordable market in terms of housing, it's still quite tight across the country and that should still be the case," said Hughes.
This report by The Canadian Press was first published Feb. 5, 2025.
Sammy Hudes, The Canadian Press
