Central bank warned housing slump and tariffs threaten Canada’s fragile recovery
The Bank of Canada held its policy rate at 2.25%, but its April Monetary Policy Report put housing and a buildup of small condos at the centre of a weaker growth story for the next two years.
Against a backdrop of US tariffs, trade uncertainty and the war in the Middle East, the central bank said residential real estate has shifted from an engine of expansion to a brake on the wider economy.
Canada’s economy is still expected to grow, but only modestly, with real GDP forecast to rise from 1.2% in 2026 to 1.6% in 2027 and 1.7% in 2028.
Housing, once a key contributor, is instead projected to shave 0.1 percentage points off growth this year after previously being expected to add 0.2 points.
Housing outlook darkened by affordability and population shifts
In the report, the Bank said “residential investment is expected to be subdued over the projection horizon.”
Housing demand is “forecast to grow modestly because of slow population growth and weak investor interest,” alongside “stretched affordability and the recent slowdown in population growth” that are “constraining demand and weighing on housing activity.”
The Bank added that “a substantial inventory overhang of small condominiums in some major centres will restrain new construction,” a key risk for developers and construction lenders focused on pre-construction projects.
Activity across much of the residential market has already been in a prolonged slump, with the Canadian Real Estate Association (CREA) downgrading its forecast for 2026 sales amid a stormy economic climate and continuing uncertainty over the housing market.
Unsold condos pile up
Urbanation’s latest numbers showed how far Toronto’s new condo market has fallen by early 2026, even as conditions quietly set the stage for a future supply squeeze.
The Greater Toronto Hamilton Area (GTHA) saw just 246 new condo sales in Q1 2026, a 35-year low and 52% below the same period last year. There were also no new project launches during the quarter, a first in at least three decades.
Over the five-year downturn, completions surged while buyers stepped back under higher rates and economic uncertainty.
Moreover, Taz Zaide of 6ix Mortgage Group told Canadian Mortgage Professional that well-publicized appraisal issues, with buyers suddenly trying to get a mortgage for a property worth less than they agreed to pay, are continuing to drive people away from the condo space.
“Especially on the appraisal front, we’re finding that people are still bleeding on that end. So we don’t think the condo market will be reversing anytime soon,” he said. “And we haven’t seen that many people buying condos as of late.
“It looks like people are trying to steer away from them, knowing this as well. Most of our transactions have been anything but a condo.”
Oil, tariffs and rates keep mortgage outlook uncertain
The housing downgrade came as the Bank grapples with a complex global backdrop. US tariffs and uncertainty around the future of the Canada–United States–Mexico Agreement (CUSMA) are “expected to remain in place and have a persistent negative effect on economic activity.”
At the same time, the war in the Middle East is expected to push oil prices higher in the near term, lifting inflation to around 3% before it eased back toward the 2% target in early 2027.
Higher oil prices have “broadly offsetting effects” on Canada’s economy, the Bank said, boosting energy exports and government revenues while eroding household purchasing power through higher gasoline costs.
The report projected that most of the pass-through from higher input costs would occur over 2026, adding about 0.3 percentage points to CPI inflation before price growth settled at roughly 2% in 2027 and 2028.
The Bank also cautioned that it might have to raise its benchmark rate if oil prices stay elevated and “ramp[ed] up consumer prices in general,” a move that would make variable-rate mortgages more expensive and push up funding costs for fixed rates.
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