The Canadian real estate market is entering 2025 under considerable pressure, characterized by rising insolvencies, fluctuated housing starts, and looming trade tensions with the United States. According to reports, the residential development sector has faced unprecedented financial distress, with debtor-initiated real property insolvencies soaring by 42.5 percent year-over-year. This worrying trend has particularly accelerated within the construction industry, marking it as the highest sector for insolvency activity.
The Office of the Superintendent of Bankruptcy Canada noted significant increases not only in real estate but also across various associated economic sectors, with construction insolvencies showing a staggering 30 percent rise from 2023. The convergence of these factors forebodes challenging conditions for real estate stakeholders as they navigate the tumultuous market environment.
Compounding these financial strains are fluctuated interest rates. Early June 2024 saw interest rates peak at five percent: the highest level since 2001. Since then, the Bank of Canada has been adjusting the policy rate, now stabilizing at three percent. Despite the recent reduction, these rate fluctuations are causing complications for both developers and prospective home buyers, with the unpredictability sowing seeds of uncertainty at all phases of project development.
The rising costs of construction materials and labor are also taking their toll. Since 2020, it has become progressively more expensive to build, primarily due to supply chain disruptions and labor shortages impacting the availability of required resources. The increase and subsequent delays observed due to municipal development permits are yet another handicap—extending the duration of project financing before actual construction begins.
Unfortunately, as operational costs continue to rise, developers are responding to these challenges by reducing the number of new projects or breaking ground less frequently. This slowdown creates a negative feedback loop: fewer construction starts mean fewer housing units available at precisely the time when Canada faces a pressing housing shortage.
The tightening grip of financial institutions such as banks and private lenders has resulted in reduced willingness to lend, especially to smaller and less experienced developers. Those experienced with larger balance sheets may find themselves shielded from these lending woes—the situation for novice developers is markedly different, increasingly constrained by fundraising challenges and lackluster pre-sales.
Political uncertainty adds yet another layer of complexity to the Canadian housing market. Following near-misses with significant waves of U.S. tariffs, particularly around steel and aluminum imports, developers now operate amid the specter of potential retaliatory measures. Such trade tensions have left stakeholders grappling with fears of escalated costs impacting their project balance sheets.
On the brighter side, 2025 has seen some initial optimism with housing starts rising approximately 3% to 239,739 units according to the Canada Mortgage and Housing Corporation (CMHC). The agency reported substantial growth primarily driven by multi-unit housing projects, especially notable across provinces like Quebec and British Columbia. Several urban areas saw sharp increases, with Montreal boasting a remarkable 112% year-over-year rise and Vancouver also experiencing significant gains.
Yet, alongside these positive signs, there remain indicators of uneven development within Canada’s housing market. Toronto, for example, exhibited steep declines, with multi-unit developments suffering from investor reluctance impacting new project starts.
While CMHC is projecting continued housing growth, it also warned of significant future risks owing to trade challenges, particularly the prospect of widespread U.S. tariffs. They caution these dynamics may disrupt housing markets over the next few years. “While these increases show early signs of progress to begin the year, foreign trade risks add significant uncertainty for housing construction going forward,” said CMHC deputy chief economist Tania Bourassa-Ochoa.
Looking beyond 2025, the outlook suggested by CMHC indicates slowing growth for housing starts largely attributed to declining condominium construction—driven by waning investor demand and the shifting preferences of young families toward alternative housing options. The threat of a trade war between Canada and the U.S. could have cascading effects, potentially fueling inflation and forcing the Bank of Canada to react with eased interest rates to bolster the economy.
For many developers, the uncertainty surrounding trade policies might defer their new projects as they seek to gauge the economic climate. With market conditions as hazy as they appear, it remains to be seen how these dynamics will play out and what they will mean for homeowners and investors alike.