Canada’s housing market has been under significant pressure through 2025. After over two years of steep rate hikes, the Bank of Canada (BoC) has now cut interest rates by 225 basis points, bringing the overnight rate to 2.75%. The question is: Will these rate cuts provide meaningful relief to homebuyers and cool prices, or is deeper reform needed?
1. Rate Cut Overview: Relief Already Delivered
BoC began aggressive easing in mid-2024, cutting rates by 225 bps. But despite these moves, mortgage rates and borrowing costs remain elevated due to prime lending rates hovering near 4.95% for fixed termsMarketWatch+15Reuters+15NerdWallet+15. Even now, the apex of the neutral range, the central bank has held rates steady through July for the third time as it watches physical inflation and U.S. trade tensions closely The Wall Street Journal+3Reuters+3Reuters+3.
2. Home Prices: A Modest Decline, But Not a Collapse
- According to a Reuters poll of 16 experts, average home prices are expected to fall 2% nationally in 2025 and remain largely flat through 2026 unless conditions change Reuters+2Reuters+2mpamag.com+2.
- Average prices have already dropped ≈3% in 2025. Toronto may see a 4% decline, and Vancouver around 2%Reuters+8Reuters+8mpamag.com+8.
- A March poll had suggested modest 2% gains earlier, but market sentiment has shifted dramatically as tariffs and economic uncertainty mounted Reuters+1Reuters+1.
- Home sales have weakened—CREA downgraded its 2025 transaction forecast and actual home starts have fallen short of expectations NerdWallet+2Reuters+2Reuters+2.
3. Why Price Falls Are Limited Despite Lower Rates
A. Weak Buyer Confidence
U.S.-led trade tensions and threats of new tariffs have dampened consumer confidence. Buyers fear economic instability and job loss, leading many to stay on the sidelines mpamag.com+2Reuters+2Reuters+2.
B. Mortgage Renewals & Household Debt
Over 2 million Canadian mortgages are up for renewal by 2026—many at far higher rates than when originally borrowed. Even with rate cuts, many households face higher monthly payments due to past low-rate lock-ins cmhc-schl.gc.ca.
C. Limited Supply
Canada continues to experience the lowest housing inventory in decades, even as federal “Housing Accelerator Funds” including Build Canada Homes aim to address the supply gap. But meaningful supply increases are years awayWikipedia.
D. Structural Affordability Challenges
Despite forthcoming rate cuts, overall housing affordability may still take years to recover—especially in Ontario, B.C., and Quebec. Analysts from Desjardins expect little improvement in affordability over the next two years MarketWatch.
4. Forecasts & Rate Cut Scenarios
- Most economists expect two more rate cuts in 2025—likely lowering the policy rate to 2.50% by September and potentially 2.25% by year-end if trade tensions worsen Reuters+1The Wall Street Journal+1.
- Some forecasts call for moderate price declines of 1.5% to 3% in 2025, followed by recovery in 2026–27 if global conditions stabilize True North MortgageReuters.
5. What This Means for Canadians
| Factor | Effect on Housing Market |
|---|---|
| Rate Cuts | Provide partial relief on borrowing costs, but benefits uneven |
| Buyer Confidence | Still low due to trade and job uncertainty |
| Mortgage Renewals | Millions face higher payments despite rate cuts |
| Housing Inventory | Still near historic lows, limiting supply-based correction |
| Regional Differences | Expect sharper adjustments in Toronto/Vancouver than in other provinces |
6. Final Verdict: Not a Rate-Only Solution
Interest rate cuts alone are unlikely to transform Canada’s housing market. Until the country addresses:
- Public confidence shaken by trade instability
- Massive mortgage renewals burdening families
- Chronic lack of affordable housing supply
Home prices may drift downward modestly but remain relatively unaffordable. Without aggressive policy change or global relief, rate cuts in isolation will have limited impact.
