Canada Housing Market

Canada’s housing market is unlikely to see a strong rebound anytime soon, according to a new report from BMO Capital Markets. The bank says the gap between what sellers expect and what buyers are willing to pay remains the biggest obstacle to higher sales. Until that gap closes, either through voluntary price reductions or more severe market pressures, sales will continue to lag behind historical levels.

Toronto Sales See Uptick, But Still Below Average

Toronto, Canada’s largest real estate market, posted a 10.9% year-over-year sales increase in July 2025, marking the fourth straight month of seasonally adjusted growth. However, BMO Senior Economist Robert Kavcic warns that this growth comes from an extremely low starting point.

Sales are still well below the past decade’s average and only slightly above July 2017 levels, when Ontario introduced its foreign buyer tax and the market saw a sharp slowdown.

Buyer-Seller Price Gap Holds Market Back

Kavcic points to a “wide bid-ask spread” between buyers and sellers as the main reason listings are going stale. While falling prices and modest sales gains in July show signs of progress, the gap remains too large for a true market recovery.

BMO identifies three potential scenarios to close this gap:

1. Forced Selling – Triggered by job losses, a deep recession, or rising mortgage delinquencies. The bank says this is the least likely scenario right now.
2. Lower Mortgage Rates – Rates in the low 3% range could stimulate sales, but that would require a further 100 basis point drop, a challenge given inflationary pressures.
3. Price Cuts – The most realistic option, according to BMO. While price reductions have already begun in some markets, further declines could encourage more buyers to act.

Price Cuts Seen as the Most Likely Outcome

BMO’s analysis suggests that meaningful price drops are the most probable path to restoring balance in the Canadian housing market. Lower mortgage rates could help, but substantial cuts would require economic conditions that might also weaken buyer demand.

Canada’s housing prices surged during the pandemic and remain elevated despite recent declines. Many sellers are still reluctant to adjust asking prices, but BMO warns that without further reductions, the market will remain sluggish.

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Source: Canadian Home Sales To Stay Weak Until Prices Drop—Voluntary Or Forced: BMO – Better Dwelling

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