Canadian real estate is forecast to see some sunshine—but not without periods of volatility. RBC now sees a gradual path to recovery for home sales, but warns it will be uneven, softening its stance on a “soft landing.” Most markets are expected to improve—except Toronto and Vancouver, where prices are seen falling further. The outlook is inching closer to reality, though it still has some gaps in the logic.
Canadian Real Estate Sales Fell, Shaking Market Confidence
Seasonally adjusted Canadian home sales fell 1.7% in September—the first decline since April. The drop broke the trend of improvements over recent months, a reminder that the recovery won’t be a straight line.
“We expect resales to continue to recover gradually in the year ahead as lower interest rates, and in some markets, lower prices, stimulate buyer demand,” explains Robert Hogue, RBC’s assistant chief economist.
RBC sees lower rates and price drops boosting home sales, but seems to stress that a recovery is a process that will take time. It notably didn’t offer a timeline for a return to normal—but made it clear that it’s unlikely within the next 12 months.
Canadian Real Estate Is Entering Choppy Waters
RBC has shifted its tone from earlier this year, backing away from its soft landing narrative. September’s pullback was just one of several indicators chipping away at optimism. The bank additionally flagged a few persistent risks: economic uncertainty, labour market weakness, and poor affordability.
It also pointed to external shocks—like new US tariffs—as evidence that uncertainty is mounting. Canadian real estate sales improving over the coming months isn’t a guarantee, but the bank’s base case—the scenario they think is most probable. A base case built on the assumptions of falling rates and steady confidence, two assumptions that rarely coexist.
Traditional monetary policy uses cuts to respond to deflationary threats, which follow weak consumption. Falling consumption is almost always due to eroding confidence. But we digress.
RBC Expects Further Price Drops In Toronto & Vancouver—But The Rest of Canada May Be Fine
RBC isn’t fully ready to drop its soft-landing narrative, retaining some points. Structural factors like supply, migration, and local economies are driving what it calls “continued regional divergence and periodic volatility.” Great band name.
That’s bad news for Toronto and Vancouver, traditionally Canada’s priciest and most active markets. The slowdown is forecast to remain concentrated in these cities, where RBC expects further price declines amid rising inventory. That inventory is also seen rising even further with the massive inflow of new home completions.
Elsewhere, it’s a different story. The bank sees the Prairies, Quebec, and Atlantic Canada holding firm, with tight supply and stable demand potentially even pushing prices higher.
RBC’s Canadian Real Estate Outlook Has Big Gaps In Logic
RBC’s outlook suffers from some logical gaps that were hard to ignore. The take on Atlantic Canada is a key example: the bank sees Toronto prices continuing to fall, while Atlantic Canada prices are stable—or even rising—facilitated by affordability. Halifax condo prices are near all-time highs and approaching Toronto valuations, so in this scenario, Halifax becomes more expensive. Doesn’t that kill the affordability-driven demand?
National real estate booms are credit-driven and detached from fundamentals. The exuberance first forms around capital-heavy, investor hubs—Toronto and Vancouver—before radiating outwards to smaller regions. These markets led the way up, and unless something breaks the cycle, they’re likely to be leading the way lower.
RBC’s take is different. They saw these regions crash and expect prices will continue falling as more supply arrives. However, the rest of the country is somehow rational and policy-sensitive, where prices are perfectly efficient. Even the 88.1% spike for Halifax condo prices between 2020 and April 2022, a period that starts with the slowest population growth since WWII, and precedes the 2022 policy changes that resulted in the record surge? Sure, why not?
Canada’s largest bank, ladies and gentlemen! They’re on a roll.