Canada home prices likely to drop in 2025 as tariff uncertainty persists: TD
Canadian home prices should fall on average in 2025, with tariff uncertainty that muted the market in the first quarter unlikely to fade away, according to TD Economics' latest housing outlook.
The tariff threat, as well as severe winter storms, led to a double-digit quarterly decline in sales and a mid-single-digit quarterly drop in prices — 'much weaker' than forecast in December, TD economist Rishi Sondhi wrote in a report published Wednesday.
'This much-softer starting point has led us to materially mark down our 2025 annual average growth forecasts for Canadian home sales and prices,' Sondhi wrote. TD now forecasts a 3.2 per cent drop in average home prices this year, as well as a decline in sales of 0.9 per cent.
The tariff situation is seen as a key factor for the first quarter as well as the outlook ahead. Sondhi explicitly notes that the December forecast came prior to the January 20 inauguration of U.S. President Donald Trump. Trump's announcement of tariffs on that date was singled out as the 'moment' that sales began to plunge by the Canadian Real Estate Association, with February's month-over-month drop in sales the largest in nearly three years.
The dismal conditions do not seem to apply to the cottage market to the same degree, with a new Royal LePage report forecasting an increase in prices for single-family recreational homes across the country.
'While the mainstream market is more sensitive to economic shifts, demand in the recreational segment remains steadfast, even during periods of market hesitation," Phil Soper, president and CEO of Royal LePage, said in a statement.
Although 2025's first quarter for the broader market was particularly bad, Sondhi writes, 'elevated uncertainty and a deteriorating jobs market will yield subdued sales and price growth for much of 2025.'
TD's revised forecasts have the biggest cuts to expectations in British Columbia and Ontario, with average home prices expected to fall 4.1 per cent and 6.4 per cent, respectively, in 2025.
'This reflects muted demand conditions in both markets and supply/demand balances that are heavily skewed in favour of buyers,' Sondhi wrote. The condominium market in the Greater Toronto Area is 'particularly soft,' he points out, and should keep average prices down for the entire province.
Outside B.C., Ontario, and P.E.I. (where a one per cent drop in prices is forecast), TD still expects average prices to climb in 2025, though all provinces have had their price growth forecasts 'marked down,' Sondhi says. A tighter supply-and-demand relationship and 'comparatively better affordability' in Manitoba, Saskatchewan and Alberta mean quarterly price gains there should still 'outperform,' Sondhi adds.
TD expects 'a notable rebound' in both sales and prices in 2026, based on its most recent quarterly forecast, which assumes six months of heavy tariffs before negotiations lead to an improved trade situation. In that scenario, uncertainty would eventually wane and interest rates 'should be at multi-year lows,' Sondhi says. Average prices are expected to rise 4.8 per cent in 2026, with sales up 10.1 per cent, TD projects.
'These factors will facilitate the release of significant pent-up demand. However, the scale of bounce-back in Canadian average home prices will likely be restrained by poor affordability in key markets like B.C. and Ontario."
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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