Home prices are still slumping across major Canadian housing markets

Home sales showed no sign of a rebound last month across the country – and prices are also continuing to slide, falling by nearly 5% year over year as homebuyers stayed on the sidelines.

Purchase activity was already muted at the beginning of the year as brutal weather pummelled the country and kept hopeful buyers inside, but ongoing economic uncertainty and political turmoil in the Middle East don’t look likely to improve market confidence anytime soon.

Part of the problem, according to Canadian Real Estate Association (CREA) senior economist Shaun Cathcart, is that plenty of shoppers in key markets including Ontario and British Columbia are holding out for prices to fall further even despite a recent drop in mortgage rates.

And price declines are also deterring potential move-up buyers because they aren’t confident of shifting their current home in today’s frozen market, Rock Capital Mortgage broker-owner Dwight Trafford (pictured top) told Canadian Mortgage Professional last week.

“One of the fears I hear from my database is ‘I would like to sell and I’d like to move, but I’m worried that my house won’t sell,’ so they just don’t do anything,” he said. “And it’s true. Their house may not sell or they may not get enough money to get a a downpayment on the next house.

“Generally, though, their thoughts are ‘The house I’m in isn’t the one I really like, but I don’t believe that I can sell it and get enough money to buy something else.’ So these people are stuck.”

Buyers and sellers confront a much-changed outlook across Canada

In days gone by, rampant price appreciation in Canada’s real estate market meant homeowners were generally able to rely on a tidy profit from the sale of their existing home to fund their next purchase.

But the sharp correction at play in major markets, especially the Greater Toronto Area (GTA) and Greater Vancouver Area (GVA), has nixed that trend and added a fresh complication for homeowners weighing up their next move.

That spiral started around 2022, when the Bank of Canada began to hike interest rates in a war against runaway inflation that poured cold water on a red-hot market.

“Generally, when house prices go up three or four or five percent every year, people are pretty comfortable that they’ve been in the house for five years and should be able to sell, get a decent buck, and be able to buy something else,” Trafford said.

“I think right now they’re believing that that may not be the case, ‘so I guess I’ll stay here for another few years and hope my home value goes up.’”

Rates wobble amid continuing Middle East crisis

While the Middle East conflict and oil price disruption have raised questions about a potential hit to the Canadian and global economies, the Bank of Canada is expected to leave interest rates unchanged in its Wednesday decision (March 18) amid concerns about the inflation outlook.

That means borrowers shopping for a variable mortgage rate aren’t likely to see any relief at least until the central bank’s next decision, although some observers say the BoC would be justified in leaving rates unchanged for the entire year.

Five-year Government of Canada bond yields, which lead fixed mortgage rates, have also edged higher in recent weeks – but they saw some welcome relief on Tuesday, moving lower as financial markets continue to assess how the Iran war is affecting the economy.

For the long-term outlook, plenty depends on how long that conflict lasts even though on the US side, some analysts believe a lengthy war wouldn’t necessarily push mortgage rates significantly higher.

In Canada, too, there are some encouraging signs despite the overall gloomy picture, according to Cathcart.

While February was a bleak month for real estate, “there was some indication things were starting to pick up speed toward the end of the month,” he wrote. “2026 is still ultimately expected to be a story about pent-up first-time buyer demand finally seeing a chance to enter the market.”

Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.