Sliding real estate values bit into households' balance sheets
Canada’s housing market slowdown in the second quarter of 2025 put the brakes on household net worth gains even as financial markets rebounded. Royal Bank of Canada’s (RBC's) latest analysis, based on Statistics Canada data, showed that real estate values slipped and debt levels kept rising, limiting the overall boost to Canadians’ balance sheets.
The CREA’s MLS Home Price Index dropped 1.2% in Q2, erasing earlier gains. Mortgage borrowing continued but at a slower pace, with household credit market debt up 1% to $3.1 trillion. The debt-to-disposable-income ratio climbed to 174.9%, as debt growth outpaced income gains of just 0.3%.
Despite the softer housing market, Canadian household net worth still rose by 1.5% to $17.9 trillion, driven by a surge in financial assets that tracked a 7.8% rise in the S&P/TSX Composite.
However, RBC warned that “debt-servicing costs remain below the 2023 peak, but are expected to move higher as fixed-rate mortgages renew at higher rates. That should remain manageable under our base case, although it depends on the unemployment rate not rising significantly further.”
Many borrowers valued the predictability that fixed rates provided. In most cases, variable-rate products were offered at rates comparable to fixed-rate options, depending on the lender.
Statistics Canada also highlighted that most net worth gains came from rising financial assets, with the top 20% of households holding nearly 70% of those assets. The household savings rate eased to 5% in Q2, reflecting robust spending and a softer labour market.
Looking ahead, RBC expects housing market activity to gradually recover. “With market confidence gradually improving, housing activity is expected to recover modestly in the second half of 2025 and build further momentum into 2026,” RBC said. Tariff concerns continued to put pressure on the market by raising the risk of higher import costs and more stock market swings, but the most severe outcomes have not happened so far.
"The anticipated rebound in Canadian housing markets may have only been delayed by a few months, following a chaotic start to the year,” said Shaun Cathcart, CREA’s senior economist. “Although with the latest 35% tariff threat, we’re not out of the woods yet."
At the end of June, there were 206,435 properties listed on Canadian MLS Systems, up 11.4% year over year and just 1% below the long-term average for that time of year. National inventory stood at 4.7 months, slightly under the long-term average of five months. A seller’s market is typically below 3.6 months, while a buyer’s market is above 6.4 months.
