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Canada’s real estate market has fallen since rising interest rates and rising tariff issues with the United States destroyed some greenbacks this spring, but it could fall even more if immigration levels decline as currently thought, the National Bank of Canada says.
“The worst of the demographic adjustment that we thought was behind us could … still be ahead of us, and this will put even more pressure on the real estate market in the next two years,” said Daren King, senior economist at the National Bank of Canada, in a note on Wednesday.
Justin Trudeau’s immigration plan, first laid out in late 2024, called for, among other things, a reduction in the number of non-permanent residents (NPRs) to five percent of the population by the end of 2027.
The share of NPRs of the population was 6.7 percent in July, an increase from an earlier estimate in April, but still below the 7.2 percent share recorded in 2024, according to Statistics Canada.
King said the housing market was hit despite the smaller-than-expected decline in NPRs and the accompanying slowdown in population growth.
For example, the number of newly built and unsold homes now sits at its highest level since records began, while slower population growth has also increased vacancies and pushed down rents.
Canada’s housing market sputtered in September after logging several months of improving sales and prices, with sales down nearly eight percent from a year ago and the national benchmark price down 3.5 percent.
Compared to the peak of the pandemic housing market in early 2022, the composite benchmark price is down 23 percent, according to the Canadian Real Estate Association.
A doubling of immigration cuts to meet Trudeau’s 2024 targets would only amplify any previous fallout, which is why King said 2027 and 2028 could be crunch time for the real estate market, although the impact is likely to hurt those provinces where real estate is already most on the ropes.
In British Columbia and Ontario, where home sales are already about 22 percent below their 10-year average, the population is expected to contract over the next two years in the former and flatline in the latter, although it will still be below the national average.
Quebec will take the biggest population hit, adding to the stress in its resale housing market, where sales have fallen below the 10-year average, King said.
But he said there is still time to avoid some of the worst effects of immigration cuts, with the National Bank of Canada urging the federal government to consider changes to its policy.
“With the cooling of the resale market, the new construction sector and the rental market, the conditions already appear to be in place for housing affordability to continue to improve in the coming years,” King said.
Prime Minister Mark Carney said in September that he was on a “controlled increase in population” in an interview with the New York Times.
Ottawa announced last week that it is making changes to one of its immigration programs for high-wage occupations, such as engineers and electricians, to boost numbers and drive economic growth.
The federal government is expected to announce its immigration plans for 2027 to 2029 on November 1.
“Without a change in policy direction, there is a risk that the real estate market will continue to suffer not only from low population growth, but also from rising interest rates, high construction costs and persistent geopolitical uncertainty,” King said.
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Among their reasons are the results of the central bank of Canada’s Survey of Consumer Expectations which found that more people believe that the rate of inflation will come well above the Bank of Canada’s target of two percent over one year, two years and five years.
However, David Rosenberg, president of Rosenberg Research & Associates Inc., cautioned that this is a weak metric for betting, especially the five-year reading and called the shift to hike forecasts “bizarre.”
Beyond the calls, Rosenberg fears a “hawkish”-sounding Bank of Canada governor could subject an already weak economy to higher rates it can’t afford.
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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.
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