Canada’s housing market has continued to cool through 2025, even as the Bank of Canada’s interest rate cuts filter through to lower mortgage rates. The combination of U.S.-led trade tensions, economic uncertainty, higher unemployment and slowing population growth — driven by a slowdown in immigration — has weighed on real estate activity across the country.
For private mortgage investors, these macroeconomic shifts are reshaping mortgage demand, borrower behaviour, housing activity and investment returns for the remainder of 2025 and into 2026.
Housing Affordability Trajectory
After the pandemic-era surge that sent home prices to record highs, affordability has gradually improved across Canada. According to the Bank of Canada’s Housing Affordability Index, conditions have now improved for six consecutive quarters. However, the recovery remains uneven.
Major urban markets, including Toronto, Vancouver, Hamilton, Victoria, Ottawa-Gatineau, Montreal and Winnipeg, have seen affordability improvements, while Calgary has remained largely flat. In contrast, affordability has worsened in Quebec City and Edmonton, reflecting local economic conditions and supply-demand dynamics.
Many Canadians are finding relief as borrowing costs ease. Recent declines in short-term bond yields, driven by slowing economic growth and market expectations of future Bank of Canada rate cuts, suggest that some borrowers—particuarly those holding short-term and variable rate mortgages—could see modest rate relief.
However, for homeowners renewing existing mortgages, rates remain well above the historically low levels seen during the pandemic. Roughly 60% of mortgages in Canada are expected to renew in 2025 and 2026.
By early October, the average five-year fixed mortgage rate stood between 4.6% and 4.7%, though rates vary depending on lender, borrower profile and mortgage product.
Rates directly influence lending activity and borrower decisions. In the private mortgage investing space, they shape the demand for alternative lending solutions and impact investor returns.
While Canada’s mortgage delinquency rate remains near historic lows, signs of financial stress are emerging in other areas. According to Equifax Canada, non-mortgage delinquency rates, covering credit cards, auto loans and other consumer credit, have risen to their highest level since 2009, reflecting pressure on household budgets from inflation and elevated debt servicing costs.
This divergence underscores the resilience of the housing market relative to broader consumer credit, though risks remain if economic conditions deteriorate further.
Regional Market Divergence
Nationally, home sales have been trending just below the 10-year monthly moving average, according to the Canadian Real Estate Association (CREA). Prices are down sharply from their 2022 peaks but remain historically high, with the national benchmark price hovering around $664,000 as of August 2025.
Despite the broader slowdown, home prices have shown resilience. CREA’s latest data indicates a 0.7% year-over-year increase, suggesting the market may be stabilizing following two years of correction.
Regional differences, however, are increasingly shaping Canada’s housing landscape. In the Prairie provinces, markets such as Calgary, Edmonton and Saskatoon remain relatively balanced, supported by more affordable price points, stable employment in energy and manufacturing and steady population inflows. Calgary’s market, in particular, has held firm, benefiting from interprovincial migration from higher-cost provinces.
In Quebec, conditions are generally stable, with Montreal seeing modest price growth and balanced supply-demand dynamics. However, Quebec City has experienced renewed affordability pressures due to limited inventory and localized demand surges.
Across Atlantic Canada, markets like Halifax and Moncton have cooled from their pandemic-era highs but remain comparatively balanced. These regions continue to attract buyers from other provinces seeking more affordable housing options, sustaining moderate price growth and steady sales activity.
In contrast, Ontario and British Columbia, which led the country’s price gains during the pandemic, are facing more pronounced challenges. Ontario’s housing market, particularly in Toronto and surrounding regions, has softened amid elevated supply in the condo sector and slower sales volumes. The buildup of condo inventory has started to spill over into other housing segments, putting downward pressure on prices and exposing investor-heavy markets to volatility.
British Columbia faces similar dynamics, with high borrowing costs and stretched affordability dampening demand in cities like Vancouver and Victoria. The condo market has become a source of imbalance, leading to flat or declining prices in some urban areas.
For private mortgage investors, these regional disparities highlight the importance of geographic diversification. Exposure to more balanced markets in the Prairies, Quebec and Atlantic Canada may help mitigate risk and stabilize portfolio performance. Meanwhile, caution is warranted in markets such as Ontario and British Columbia, where elevated prices and shifting supply-demand conditions could weigh on returns.
Labour Market and Wage Dynamics
In many respects, Canada’s housing market is only as resilient as the local economies that support it, particularly through employment and wage growth. In 2025, Canada’s unemployment rate has risen notably amid softness in key sectors such as construction, manufacturing and technology. Slower hiring and job losses in these industries have tempered household confidence and constrained housing demand in several regions.
The silver lining is that economists expect labour market conditions to gradually improve into 2026, as recent interest rate cuts begin to stimulate investment and consumer spending. However, wage growth is forecast to ease from the strong gains seen in 2023–2024, reflecting more modest productivity and output growth.
Canada’s broader economic outlook remains subdued but stable. According to the Bank of Canada and private-sector forecasts, real GDP is expected to expand by roughly 1.1% in 2025, following sluggish growth in 2024. A mild acceleration to around 1.7% in 2026 is anticipated as lower borrowing costs filter through the economy, supporting sectors like housing, retail and business investment. Still, headwinds from weak exports, global trade tensions and slower population growth due to reduced immigration could keep overall momentum restrained.
For private mortgage investors, slower income growth may limit borrowers’ capacity to take on new debt or refinance existing loans, potentially elevating default risk. Investors will need to factor in these dynamics when assessing credit quality, pricing risk and identifying opportunities across Canada’s diverse housing markets.
Bond Market Pressures on Fixed Mortgage Rates
Many investors focus on central bank rate decisions, but fixed-term mortgage rates are more directly influenced by government bond yields. In recent months, short-term yields have eased as economic growth slows and markets price in potential Bank of Canada rate cuts, while long-term yields remain elevated due to rising federal and provincial borrowing and global market pressures.
Canada’s 10-year Government of Canada bond yield, a key benchmark for five-year fixed mortgage rates, has declined from its 2023 peak. In 2025, it rose sharply between early April and July 2025 before easing somewhat in the following months. As of early October, it remains above 3%, supported by long-term pressures from expanding federal and provincial borrowing as well as global market factors, including large US budget deficits and trade uncertainty. These dynamics could limit the extent of any rate relief for fixed-rate borrowers, as continued government bond issuance is likely to keep long-term yields elevated in the months ahead.
Foreign demand will play a critical role in determining how this unfolds. International investors, particularly from the United States, Europe and Asia, have historically been active buyers of Canadian government debt, drawn by the country’s AAA credit rating, stable political environment and relatively attractive real yields compared to other developed markets. However, competition from higher-yielding U.S. Treasuries has tempered some demand in 2025, leading to greater reliance on domestic investors. Sustained foreign appetite will be essential to help absorb new issuance and contain further increases in yields.
In private mortgage investing, these bond market dynamics are important to monitor. While private lending rates are not directly tied to government bonds, upward pressure on fixed-rate mortgages can influence borrower behaviour, refinancing trends and overall demand for alternative lending products. Understanding how bond yields shape the broader cost of capital is therefore critical when structuring portfolios and assessing return potential in a shifting rate environment.
Borrower Behaviour
Canada’s shifting macroeconomic landscape is reshaping borrower behaviour, with direct implications for residential housing demand and mortgage market dynamics. Renewals, prepayments and refinancing activity are increasingly being influenced by affordability conditions, evolving mortgage rates and regional market trends.
So far, mortgage delinquencies remain relatively low compared with other forms of consumer credit — a pattern consistent across both conventional and private mortgage segments. However, as households navigate higher living costs and modest income growth, monitoring how borrowers adjust their financial strategies will be crucial for anticipating shifts in repayment patterns and loan performance.
In the private mortgage market, understanding borrower behaviour is critical to building well-structured portfolios and accurately forecasting cash flow. With years of experience navigating changing market cycles, CMI Financial Group is one of Canada’s fastest-growing non-bank financial services providers and a leader in private mortgage investing. Since inception, CMI has facilitated more than $3 billion in successful mortgage placements, helping investors achieve strong, stable risk-adjusted returns in all market conditions.
For advice on structuring a resilient private mortgage investment portfolio, contact CMI Financial Group today for a complimentary consultation.
