As Canada grapples with a widening income gap and a turbulent housing market, the economic landscape is shifting dramatically. Recent reports indicate that the income disparity between the top and bottom 40% of households has reached its widest point on record, exacerbating issues of inequality and class mobility. This troubling trend poses significant challenges for the nation, as the lack of reward for hard work and productivity can dishearten many households.
In a comparative analysis, Canada and Australia, despite having similar economic fundamentals, have experienced divergent outcomes over the past few decades. In the 1980s, Canada boasted an economy approximately twice the size of Australia’s. However, that figure has dwindled to just 1.25 times in recent years. This shift can be traced back to the Global Financial Crisis, which revealed that Canada's recovery was less robust than initially believed. Instead of addressing the issues faced by overleveraged investors, the burden was shifted onto households, resulting in a drag on productivity that Canada has yet to recover from.
In a surprising move, the Bank of Canada (BoC) announced it would keep its key policy rate unchanged during its April meeting, marking the first time in a year that it opted not to cut rates. This decision came amid rising trade war uncertainties, which have drawn criticism from policymakers who previously slashed rates in an attempt to combat falling inflation.
Simultaneously, Canadian real estate prices have risen, reaching a typical home price of $712,200 in March, the highest level since September 2024. This increase is particularly perplexing, given that home sales have plummeted to some of the lowest levels on record, and inventory has surged to multi-year highs. This contradiction suggests a significant influence of excessive credit stimulus in the market.
According to a report from the Globe and Mail, Canada’s housing market has historically weathered various crises, but it now appears to be facing unprecedented challenges. Recent months have seen a dramatic slump in home sales, which fell by 9.3% to the lowest level since February 2009. In Toronto, only 5,011 units were sold in March, marking the lowest number for any March since 1995. Prices have also declined for three consecutive months, with the Canadian Real Estate Association’s broad-based MLS Home Price Index down 8.5% on an annualized basis this year.
Experts are increasingly concerned that the housing market will create significant drag on the economy. David Doyle, head of economics at Macquarie Group, noted, “The risk Canada faces now is stagnation, with both elevated inflation and weak economic growth, and that’s something central banks are not well equipped to fight.” The shift in sentiment is stark compared to the optimism expressed last fall when Bank of Canada Governor Tiff Macklem suggested that falling interest rates would bolster housing activity.
For many Canadians, the uncertainty surrounding the housing market has led to a withdrawal from home buying. Mortgage broker Mike Hattim remarked, “I have multiple clients who have put their plans to buy on hold. It’s the uncertainty about the tariffs more than the tariffs themselves that is impacting people, whether that’s businesses or individuals.”
Moreover, the inventory of unsold homes is on the rise, with Ontario experiencing a 10-year high in active listings. Builders are also feeling the pinch, as homebuilding activity slows significantly. Larry Masseo, president of the Waterloo Region Home Builders’ Association, stated, “Homebuilding activity is extremely slow right now; we’ve had a depressed market for almost two years.”
Across Ontario, new housing starts fell to an annualized rate of 39,000 in March, a level not seen since the depths of the Great Recession in 2009. This decline in new construction is expected to exacerbate Canada’s affordability crisis, as a shortage of new supply may keep house prices elevated for an extended period.
Despite these challenges, there are some signs of relief in the rental market, with asking rents for new rentals dropping by 2.8% year-over-year in March, marking the sixth consecutive month of annual rent decreases. However, this decline in rental prices comes as Canada’s economy struggles to maintain momentum. With the federal government tightening immigration policies after a period of historic population growth, the outlook for economic growth remains uncertain.
Adding to these concerns, a recent report from Oxford Economics predicts that a trade war-induced recession in Canada could result in approximately 200,000 job losses by early 2026. Historically, the Canadian real estate sector has been a reliable engine for economic recovery, but the current environment poses unique challenges.
During the Great Recession from 2007 to 2009, Canadian property prices dipped by 9%, but they recovered within a year. In contrast, U.S. home prices plummeted by an average of 30% and took 14 years to fully rebound. Currently, house prices in Canada have already corrected by 10% to 20% from their peak in 2022, yet affordability remains an ongoing issue.
Despite the Bank of Canada’s recent decision to pause interest rate cuts, experts warn that the central bank may not have the capacity for dramatic reductions like it did during the financial crisis. Doyle explained, “Housing won’t become a channel for ignition like it has in the past.” The Bank of Canada aims to avoid a repeat of past mistakes, remaining vigilant against inflation.
As the Canadian housing market faces a precarious future, the uncertainty surrounding trade policies and economic conditions will likely continue to impact both consumer confidence and market dynamics. The coming months will be critical for homeowners, potential buyers, and policymakers as they navigate these turbulent waters.
