Some people need to buy a house now. This column is not for them.
This is intended for potential buyers who have the luxury of patience – those who are still renting or staying with others out of choice and not out of necessity.
The start of spring is just two weeks away, and spring is traditionally prime time in the real estate industry. The prevailing assumption at this time of year is that buyer competition is intensifying and prices are firming up.
But this is not a traditional market.
Four factors, among others, could make this spring market a little less festive:
#1. The lack of further interest relief
Before war broke out in Iran, bond yields fell as the economic outlook deteriorated. Some expected they would break last October’s lows and bring fixed mortgage rates back to the mid-three percent range.
But when the first bomb fell in Iran, this dream packed his bag and left the city. Also because oil prices have passed their annual high, central banks are now on high alert for inflationary pressures.
This leads investors to sell bonds, which drives up yields. Normally this would pull
Fixed mortgage rates are taking you – in the wrong direction.
Higher interest rates obviously cause several problems for real estate:
- They increase mortgage payments, which affects affordability.
- Higher payments mean people are eligible for smaller mortgages.
- Investors are pulling back as higher borrowing costs hit cash flow.
- Market psychology suffers from the widespread belief that Canadian real estate comes at low interest rates.
The point is: Canadian real estate prices are among the highest on the planet relative to income. Lower interest rates are the fat that slips buyers through the front door of new homes.
Curiously, however, interest rates have fallen since October 2023 and national average prices are still at their lowest level in 18 months. The interest rate cuts that were supposed to stimulate the market have so far had little effect.
Nevertheless, interest rate leverage remains an important factor for property value. And as the spring 2026 market begins, it looks like lower interest rates won’t result in anyone being bailed out.
#2. People are buying houses and there are fewer people
A report from the National Bank of Canada on Wednesday predicted that “household formation over the next two years will likely be at an all-time low due to slowing immigration.”
The same report states that the inventory of unsold new homes is “now at its highest level on record.”
Less demand and more supply is not a recipe for rising property values.
Worth noting: These are national numbers and real estate is notoriously local. Certain markets (e.g. St. John’s, NL) are still a huge success thanks to regional catalysts.
#3. The Canada-United States-Mexico Agreement (CUSMA) and uncertainty remain a burden
The good news is that consumer confidence is at its highest level in 15 months, according to Nanos Research.
The bad news is that US President Donald Trump’s tariff war against Canada – and fears that he could withdraw from CUSMA – are still unsettling buyers.
Royal LePage CEO Philip Soper has identified trade uncertainty as the single biggest factor holding back housing, which is impressive given the competition.
#4. Weakness begets weakness
Incessant headlines about falling prices – particularly in Toronto’s condo market – invade people’s minds.
This results in buyers being less aggressive with offers and sellers being more concerned about offers and negotiations, a combination that rarely has a positive impact on home prices.
Not coincidentally, Nanos reports that the percentage of Canadians who believe property values in their neighborhood will increase in the next six months is just one in three (34 percent), well below the long-term average of 40 percent.
The timing is difficult
Real estate timing is folly. For all we know, Trump could sign a trade deal that restores security and brings the real estate market back to life.
But the points above, especially the population decline, suggest that potential buyers have no compelling reason to panic buy just because the calendar says spring. You can be a little more picky.
It’s also worth noting that most analysts don’t expect the war in Iran to become a prolonged conflict – the kind that pushes oil prices well above $100 a barrel. However, if this is the case, history is pretty clear about what will follow: a broader economic downturn and possibly a recession.
Is it worth betting on lower prices?
A five percent price drop represents a savings of $32,647 on the average home purchase.
That same drop would give mortgage lenders nearly $5,000 in interest savings in the first five years alone — assuming it’s a standard mortgage with a 20 percent down payment.
Of course, if prices actually fall, affordability improves, which ultimately lures more buyers out of desperation and leads to bidding competition.
The National Bank also states: “There is a real risk that housing construction will slow down.” All else being equal, a decline in supply could ultimately support prices as well.
In the meantime, there’s no reason to get caught up in the annual “spring market” real estate rush. However, keep in mind that patient buyers should continue to monitor their local market.
From a macro perspective, if CREA’s national average price falls below $648,000 this spring (currently around $653,000), it would defy seasonal price strength trends.
If that happens, it could be a pretty clear signal that further weakness may be on the way. And if prices fall long enough, there will always be an opportunity to buy on the downside – and in a timely manner.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
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