In the final quarter of 2025, Canada’s housing market appears relatively stable compared with the chaos of recent years, though this may reflect a classic case of late-cycle stability that is inherently fragile. That apparent calm also masks decisive forces that will shape the future. The year has been defined by rising unemployment, mounting mortgage arrears, and a rise in rental-heavy housing supply. Together with the looming renegotiation of the Canada–United States–Mexico Agreement (CUSMA) next year, these factors will determine whether the market stabilizes or whether the reset deepens further. Rate cuts have lifted sentiment, but they haven’t resolved the underlying economic pressures shaping the path ahead.

Jobs and Arrears Set The Trajectory of Prices

Throughout 2025, weakening employment and rising arrears formed a defining pattern. Canada’s unemployment rate fluctuated around the seven per cent mark for most of the period, with Toronto’s doing the same at nine per cent, according to Statistics Canada. Industrial cities such as Windsor and Oshawa saw even sharper increases due to weakness in the auto sector. Youth unemployment hovered between 10 and 15 per cent, eroding the long-term foundation of first-time buyers despite supportive policy efforts.

Mortgage arrears climbed almost in lockstep. Many households initially relied on savings or lines of credit to mask financial strain, but as low-rate pandemic-era mortgages came up for renewal, delinquencies accelerated. Larger mortgages, particularly in Ontario and British Columbia, proved the most fragile. Newer loans defaulted faster, underscoring a clear conclusion: house prices could not mount a durable recovery while arrears continued to rise.

Supply Expands While Ownership Contracts

If 2025 revealed one truth, it’s the accelerating shift from ownership to rental supply. Purpose-built rental starts hit record levels, supported by CMHC’s MLI Select program, while condominium starts retreated sharply, especially in investor-heavy markets. Developers found smaller infill rental projects, often under 100 units, to be the most financially viable, while larger projects stalled under cost pressures and waning demand.

This shift carries long-term consequences. Canada is now building rental solutions much faster than ownership ones. Although affordability metrics have improved modestly as prices and rates eased, the composition of new supply suggests the dream of ownership is slipping further away. More households may find shelter, but the path to equity accumulation is narrowing.

Rates Soothe Sentiment But Not Structure

The Bank of Canada’s rate variations in 2025, from 3.25 per cent in January to 2.25 per cent by year-end, were met with enthusiasm among borrowers, who opted in rising numbers for variable mortgages. These loans accounted for nearly 42 per cent of new originations, surpassing any single fixed term.

The bond market, however, proved less convinced. Yields remained elevated relative to pre-pandemic norms, reflecting investor expectations of renewed inflationary pressure stemming from government spending and trade tariffs. As a result, fixed mortgage rates did not fall in lockstep with policy rates.

This divergence mattered greatly. Buyers who anticipated a swift return to ultra-low borrowing costs found only temporary relief. For sellers, the lesson of 2025 was equally clear. Lower policy rates do not spark bidding wars when household incomes remain under pressure. Rates alone cannot offset the structural headwinds of job losses, arrears, and oversupply.

CUSMA and Ontario’s Industrial Fault Line

The upcoming renegotiation of CUSMA, set to intensify in 2026, looms large over Canada’s economic outlook. Ontario, the linchpin of the country’s manufacturing and auto supply chain, is already contending with job losses. Roughly 20 per cent of all goods exported to the United States are subject to tariffs. Any tightening of that regime will further restrain Ontario’s economy.

The housing implications are significant. A region already facing elevated unemployment could experience deeper structural weakness if manufacturing GDP contracts, as models suggest. That weakness will not remain confined to Ontario. The wealth effect flowing from Ontario and British Columbia into other provinces will falter, creating ripple effects across Alberta, Atlantic Canada, and beyond. To understand the housing market in 2026 is to recognize that CUSMA is, in many ways, a housing story in disguise.

A Practical Playbook for 2026

For buyers, the conditions forged in 2025 point to opportunity, but only for those with discipline.

First-time buyers remain active, particularly in more affordable areas such as Ontario’s Durham Region, where entry-level homes in the $600,000 to $700,000 range still trade. Their long-term horizons make them less sensitive to short-term volatility, but prudent financing is more essential than ever.

Sellers must face today’s comparables realistically. With listings climbing and distressed inventory growing through power-of-sale proceedings, pricing that ignores market conditions is swiftly punished. Since 2022, roughly 66 per cent of Toronto-area power-of-sale filings have come from individual private lenders, a clear sign of how distress is reshaping comparables.

Investors face a split landscape. Cash-flow-driven plays in small rental developments or distressed acquisitions can work, but speculative bets on quick appreciation are perilous. With rental supply surging and rent growth cooling, caution must guide every underwriting decision.

Foch : Reflections on A Shifting Market – and Where We Go Next by Daniel Foch | REM Real Estate Magazine