TD slashes forecast with Ontario and BC hardest hit by market cooldown
Home prices in Canada are now expected to fall in 2025, as the lingering effects of trade uncertainty, affordability challenges, and weak buyer demand take their toll.
TD Economics has revised its forecast sharply downward, now expecting a 3.2% decline in average home prices this year.
“This much-softer starting point has led us to materially mark down our 2025 annual average growth forecasts for Canadian home sales and prices,” TD economist Rishi Sondhi said in the bank’s latest forecast.
The revised projection follows a double-digit drop in quarterly sales and a mid-single-digit decline in prices in the first quarter, which Sondhi described as “much weaker” than TD’s December forecast had anticipated.
TD points to a combination of elevated mortgage rates, a softening labour market, and growing uncertainty around US trade policy, particularly since US president Donald Trump’s January 20 inauguration.
The Canadian Real Estate Association (CREA) had previously flagged that moment as the trigger for a sharp pullback in activity, with February sales recording their steepest month-over-month drop in nearly three years.
Sondhi emphasized that the tariff environment will continue to cast a shadow over the market. “Elevated uncertainty and a deteriorating jobs market will yield subdued sales and price growth for much of 2025,” he noted.
While some regional markets will fare better than others, TD expects home prices to fall most steeply in Ontario (down 6.4%) and British Columbia (down 4.1%). Sondhi wrote that these provinces are facing “muted demand conditions” and supply-demand imbalances “heavily skewed in favour of buyers.”
He also pointed to the Greater Toronto Area (GTA) condo market, calling it “particularly soft” and a key factor behind the downward pressure in Ontario.
Smaller declines are expected in Prince Edward Island, where TD predicts a 1% drop. But some provinces are expected to see modest price growth, even as forecasts across the board have been marked down. Manitoba, Saskatchewan, and Alberta are projected to outperform slightly, thanks to tighter supply and “comparatively better affordability,” according to Sondhi.
TD’s housing forecast aligns with its wider economic view that Canada will experience below-trend growth in 2025 and 2026, as trade tensions, weak consumer sentiment, and population trends weigh on demand.
Although interest rate cuts are expected, TD projects the Bank of Canada will lower its policy rate to 2.25% by 2025, its estimated neutral level. Those cuts may not be enough to offset the impact of higher prices and reduced spending power.
“Consumer spending had been improving on lower interest rates, but we expect this to act as a drag on growth as higher prices cut into spending power,” Sondhi said. TD also expects inflation to stay above target through 2025 due to tariffs, before easing toward 2% in the medium term.
TD believes the Canadian dollar will eventually return to the 74–76 US cent range, but only once domestic economic growth begins to catch up with that of the US.
Royal LePage, in a separate update, noted that the recreational property market is not seeing the same slowdown.
“While the mainstream market is more sensitive to economic shifts, demand in the recreational segment remains steadfast, even during periods of market hesitation,” said Phil Soper, president and CEO of Royal LePage.
Read more: Canada's cottage prices still climbing as buyers wait and watch
Despite the gloomier near-term picture, TD sees room for optimism further out. If tariff tensions ease by the end of 2025, pent-up demand could drive a significant rebound in both home prices and sales the following year.
In that scenario, TD projects that average home prices will rise 4.8% in 2026, with sales jumping 10.1%. However, any recovery will likely be tempered by persistent affordability issues, especially in Ontario and BC.
“The scale of bounce-back in Canadian average home prices will likely be restrained by poor affordability in key markets like BC and Ontario,” Sondhi wrote.
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