Here's what mortgage professionals need to know
The Canada Mortgage and Housing Corporation (CMHC) has released its 2025 Housing Market Outlook (HMO), offering insight into how economic uncertainty, shifting immigration policies, and interest rate movements are expected to shape Canada’s housing sector over the next three years.
With trade tensions between Canada and the United States escalating and immigration targets set to decline, the economic outlook remains uncertain. While CMHC does not provide a single base case forecast, it presents three potential scenarios for the economy and housing market, each influenced by varying degrees of trade disruption.
Despite the risks, CMHC expects housing activity to improve in 2025, driven by lower mortgage rates and pent-up demand from buyers who have been sidelined by high borrowing costs. However, affordability challenges and regional variations will lead to an uneven recovery.
Tariff uncertainty
One of the biggest risks outlined in CMHC’s report is Canada’s trade relationship with the US. The agency warns that the potential for U.S. tariffs of up to 25% on Canadian exports could result in weaker economic growth, investment uncertainty, and job losses. In response, the Canadian government may retaliate with its own tariffs, further straining economic conditions.
The medium scenario assumes that the US imposes a 25% tariff on 10% of Canadian goods, with Canada responding in kind. In this case, the economic impact may be softened by increased U.S. government spending, which could bolster demand for imports. However, if more severe tariffs are introduced, CMHC warns that Canada could enter a recession in 2025, with rising unemployment and a weaker dollar compounding the economic slowdown.
Immigration policy changes will also play a role in shaping Canada’s housing market. The federal government’s decision to reduce immigration targets between 2025 and 2027 will contribute to slower population growth, affecting economic activity and housing demand. Although the reduced targets will be implemented gradually, fewer newcomers will mean weaker rental demand and a slower pace of home sales.
Despite these challenges, CMHC expects modest economic growth in 2025, improving in 2026 and 2027 as conditions stabilize. The Bank of Canada is projected to cut interest rates further in 2025 to support economic recovery, which should help ease borrowing costs. Variable-rate mortgages, which are directly tied to the policy rate, will likely see the biggest reductions, making them a more attractive option for buyers.
Housing recovery
CMHC forecasts that housing activity will improve in 2025 as lower interest rates and recent changes to mortgage qualification rules unlock demand from homebuyers who had previously been priced out of the market. However, affordability will remain a challenge, as home prices are expected to continue rising, pushing some buyers toward longer mortgage terms, higher borrowing costs over the life of their loans, and larger down payment requirements.
Resale homes are expected to see the most activity, as they offer more options for financially constrained buyers compared to newly built homes. New home construction will be slower to respond to renewed demand, as developers face high costs and tighter financing conditions.
Millennials, many of whom have delayed purchasing a home due to affordability concerns, will be a key driver of housing demand. As remote work declines, more first-time buyers are expected to seek homes in larger urban markets, particularly in Ontario, British Columbia, Quebec, and Alberta.
Repeat buyers are also expected to return to the market, including homeowners looking to upgrade and those who purchased during the pandemic and are now facing mortgage renewals between 2025 and 2027. With interest rates expected to decline, these borrowers may reconsider their housing needs, leading to an increase in sales activity and refinancing.
However, the condominium market is expected to lag behind, particularly in regions where investors have been a driving force in pre-construction sales. Rising financing costs and record-high condo completions in 2025 will likely lead to an increase in resale listings, further softening demand in this segment.
CMHC expects housing starts to slow down over the next three years, primarily due to declining investor interest in pre-construction condominium projects. Developers are struggling to sell enough units to fund new projects, particularly in Ontario, where a weaker resale and rental market is deterring new condo development.
In British Columbia, the slowdown in condo construction is expected to be less severe, as strong resale market activity is providing more stability. Alberta, where the majority of buyers are end-users rather than investors, will see minimal impact on new construction.
The rental market is also undergoing a shift. Since 2024, rental supply has been growing faster than demand, leading to increased vacancy rates and slower rent growth. This trend is expected to continue through 2025 and beyond, particularly with lower immigration contributing to weaker rental demand.
Although rental affordability is expected to gradually improve, many renters will still face challenges as market rents remain elevated. Over time, as financially able tenants move into newly built rental units, more affordable options will open up in the existing rental market.
Alternative scenarios
CMHC acknowledged that the outlook remains highly uncertain, with trade tensions, interest rates, and policy decisions all playing a crucial role in determining the market’s trajectory.
The low-growth scenario presented in the report warns that higher US tariffs could push Canada into a recession, delaying the housing recovery until late 2026. In this case, homebuilding would slow further, rental markets would remain tight, and pent-up demand would continue to build.
In contrast, the high-growth scenario suggests that fewer and shorter-lasting tariffs, combined with strong US government spending, could boost Canada’s economy and accelerate housing demand. Under these conditions, lower borrowing costs, improved job growth, and stronger consumer confidence would make homeownership more attainable, pushing prices higher at a faster rate.
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