The repercussions of U.S. tariffs and ongoing threats are reverberating through housing markets across Canada, and the uncertainty is expected to persist.
Robert Hogue, assistant chief economist at RBC, analyzed February data from local boards and noted that the mere threat of a trade war has impacted confidence, sidelined buyers, and pushed prices down. Further escalation of tensions could worsen these effects.
Housing market stumbles in February
According to the economist’s monthly report, any signs of optimism in the market quickly disappeared in February due to threats from U.S. President Donald Trump, which heightened concerns among Canadians. Severe snowstorms also kept potential buyers indoors.
Early reports show a significant decrease in sales activity, with Toronto experiencing the most substantial decline, followed by Vancouver, Fraser Valley, Calgary, and Montreal.
While demand weakened, the supply increased, giving buyers more choices, particularly in Vancouver, Fraser Valley, and Toronto, where buyers now have more negotiating power.
This shift is impacting property values, with the MLS Home Price Index dropping below year-ago levels in all three markets. Toronto saw its largest monthly price decline in 15 months in February.
Toronto’s market is on shaky ground
Toronto’s market suffered a significant blow in February, with home resales plummeting by 29% from January. This was the most substantial one-month drop since the early days of the pandemic, raising concerns about the market’s recovery.
Buyers now have more leverage due to a surge in listings, leading to negotiations with sellers. As a result, Toronto’s composite MLS HPI fell 1.5% month-over-month and 1.8% from a year ago, with condo prices contributing significantly to the decline.
The condo segment might face further downward pressure with new completions and fewer investors, especially if job losses increase due to trade-related economic consequences.
Montreal sees a sudden slowdown
Montreal’s housing market, which was rebounding strongly, experienced a sudden slowdown in February. Home sales dropped by an estimated 11% from January, marking the most significant monthly decline in four years.
While conditions are easing, competition among buyers remains high, keeping prices on the rise. Single-family home prices rose by 8.9% year-over-year, and condo prices increased by 6.3%. However, continued trade tensions could accelerate the cooling process.
Back to square one in Vancouver
After showing signs of recovery, Vancouver’s market regressed in February, with home resales dropping by over 15% from January, undoing six months of progress.
Trade tensions have seemingly spooked buyers and sellers, leading to a retreat from the market. With inventory already high, prices are under mild downward pressure. The Vancouver-area MLS HPI slipped 1.1% from a year ago in February, with condos seeing the most significant decline.
Calgary shows signs of cooling
Even Calgary’s strong housing market is feeling the impact of trade uncertainty, with home sales decreasing by approximately 12% from January, the most significant drop in 16 months. Despite historically strong activity, a growing supply of homes is balancing the market.
This shift is alleviating price pressures, with Calgary’s composite MLS HPI rising just 0.9% year-over-year, a notable difference from the nearly 11% surge seen in Spring 2024. Further cooling is anticipated in the coming months amid economic concerns.
What’s next?
Hogue anticipates that ongoing trade tensions will continue to impact market sentiment, with buyers remaining cautious and sellers needing to adjust their expectations. The longer the trade uncertainty persists, the more pronounced the effects are likely to be.
While some markets, like Edmonton, remain relatively stable, the overall trend suggests that the Canadian housing market is facing significant challenges.
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