At the start of the year, RBC anticipated that interest rate cuts would spur activity and push prices slightly higher.
But, with an unexpected trade war suppressing sales and prices in Canada’s biggest regions, market conditions have been weaker than expected.
In a housing report released Tuesday, RBC assistant chief economist Robert Hogue said the bank now projects home resales will decline 3.5 per cent in Canada to 467,100 units this year, with the first half of 2025 seeing a 4.1 per cent pullback, largely concentrated in Ontario and B.C.
‘Gradual recovery’ on the horizon
“Encouragingly, recent signs of an ongoing recovery have emerged,” said Hogue. “Prospective buyers are re-entering the market as economic fears ease and lower interest rates gain traction. We expect this gradual recovery to continue in the second half of 2025, setting the stage for stronger demand in 2026.”
Hogue said RBC is projecting a 7.9 per cent rebound in home resales next year to 504,100 units, which is still under the pre-pandemic five-year average of 511,000 units.
“Several constraints will temper the recovery. A fragile labour market, reduced immigration targets, and affordability challenges will limit the pace of growth,” Hogue noted.
Prices expected to dip
The national composite RPS Home Price Index is expected to rise by 0.7 per cent in 2025, but this reflects gains made earlier in the year.
“We anticipate prices will decline in the latter half of 2025 and into 2026 with Ontario and B.C. experiencing the steepest drops due to high inventory levels and strong competition among sellers,” said Hogue.
Nationally, prices are expected to decline by 0.7 per cent in 2026, reversing this year’s modest increase.
“For pricing, supply-demand conditions have shifted in buyers’ favour, particularly in Ontario and B.C., where affordability issues are acute.”
Pandemic frenzy made even
“The pandemic’s impact on the housing market appears to have run its course. Exceptional circumstances—including rock-bottom interest rates, government income support, and shifting housing needs—accelerated transactions that would have occurred later,” said Hogue. “The subsequent market slump triggered by rate hikes in 2022 largely corrected this unsustainable surge.”
RBC’s data suggests a growing number of Canadians are ready to re-enter the market under the right conditions, such as improved affordability, stable interest rates, and better job prospects, said Hogue.
Improved affordability has limited impact
Declining ownership costs driven by lower rates and moderating prices in some regions have made homeownership the most affordable it’s been in three years.
“This trend is expected to continue, encouraging more buyers to act,” said Hogue.
However, significant affordability challenges persist, particularly in high-priced markets like Ontario and B.C.
“Despite some relief, the share of household income required to cover ownership costs will remain well above pre-pandemic levels, limiting the pace of recovery.”
Sellers competing for offers in Ontario and B.C.
Inventory is at decade highs in Ontario and B.C., as an influx of listings is met with weaker demand.
However, inventory is tight in the Prairies, Quebec, and Atlantic Canada, where listings are still below pre-pandemic levels.
“We expect supply and demand to gradually rebalance as sales pick up,” said Hogue. “However, it will take time for the market in Ontario and B.C. to stabilize. Until then, strong competition among sellers will likely keep prices under pressure with declines continuing into early 2026 before steadying.”