From Scotiabank

HIGHLIGHTS

• Canada’s housing market has been on a roller coaster ride since the pandemic as reflected by the profile for real private investment in residential structures, housing starts, sales and prices over this period.
• Housing affordability worsened significantly over this period with house prices reaching historical highs and mortgage rates increasing with the tightening in monetary policy since early 2022. Indeed, over this 5-year period home ownership affordability pressures have reached degrees like those witnessed in the early 1980s.
• Using Scotiabank Economics’ macro-econometric model of the Canadian and U.S. economies, we estimate that tightening supply constraints in construction from 2019Q3 to 2024Q4—reflecting weakening productivity and rising construction material costs—and above-normal population growth since 2022 each contributed to raise the benchmark MLS Home Price Index (HPI) a bit more than $50,000 over that 5-year period.
• This implies that if supply constraints had not tightened and population growth had stayed near its long-term average, the benchmark MLS HPI would have been slightly below $616,000 instead of the near $719,500 posted for 2024Q4.
• Our assessment and results strongly press the need to work on improving productivity to achieve housing affordability. Indeed, reducing bureaucratic burdens will also make housing supply more responsive to demand, thereby reducing price increases for a given rise in demand in the future.
• From 2024 to 2026, weaker population growth and uncertainty about trade barriers and their economic impact will reduce demand for homeownership. We forecast housing resale activity will slow in 2025 and 2026, declining from near 483,000 in 2024 to about 459,000 in 2026.
• Tight supply constraints will contribute to raise house prices especially in 2026 and mitigate progress on affordability from the past decline in interest rates and robust growth in real income. We expect the MLS House Price Index to rise by 0.4% in 2025 and 7% in 2026 with still-elevated supply constraints and pressure from the existing dwelling shortage.
• Of course, this expected profile for housing sales, starts and prices would be weaker if additional tariffs announced by the U.S. turn out more important than assumed in this forecast.

https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-note.housing-note--march-19-2025-.html