Posthaste: Canada’s flailing housing market still in the crosshairs of a demographics reckoning, says National Bank

Canada’s real estate market has slumped since rising interest rates and increasing tariff troubles with the United States crushed some green shoots this spring, but it could fall even further if immigration levels drop as they are currently meant to, says National Bank of Canada.

“The worst of the demographic adjustment, which we thought was behind us, could … still be ahead of us, and this would put even more pressure on the real estate market over the next two years,” Daren King, senior economist at National Bank of Canada, said in a note on Wednesday.

Justin Trudeau‘s immigration plan, first laid out in late 2024, called for a reduction in the number of non-permanent residents (NPRs) to five per cent of the population by the end of 2027, among other things.

NPRs’ share of the population was 6.7 per cent as of July, an increase from an earlier estimate in April, but still below the 7.2 per cent share recorded in 2024, according to Statistics Canada.

King said the housing market has been hit despite the smaller-than-expected drop in NPRs and the accompanying slowdown in population growth.

For example, the number of newly built and unsold homes is now sitting at its highest level since records began, while slower population growth has also driven up vacancy levels and driven down rents.

Canada’s housing market sputtered in September after logging several months of some improvement in sales and prices, with sales down nearly eight per cent from a year ago and the national benchmark price declining 3.5 per cent.

Compared with the peak of the pandemic housing market in early 2022, the composite benchmark price is down 23 per cent, according to the Canadian Real Estate Association.

A doubling of immigration cuts to meet Trudeau’s 2024 targets would only amplify any previous fallout, which is why King said 2027 and 2028 could be crunch time for the real estate market, though the impact would likely hurt those provinces where real estate is already on the ropes the most.

In British Columbia and Ontario, where home sales are already about 22 per cent below their 10-year average, the population is expected to contract over the next two years in the former and flatline in the latter, though it will still undershoot the national average.

Quebec will take the biggest population hit, adding to the stress in its resale housing market, where sales have fallen below the 10-year average, King said.

But he said there is still time to avoid some of the worst effects of immigration cuts, with National Bank of Canada calling for the federal government to rethink changes to its policy.

“With the cooling of the resale market, the new-construction sector and the rental market, the conditions already appear to be in place for housing affordability to continue improving in the coming years,” King said.

Prime Minister Mark Carney in September said he was open to a “controlled increase in the population” in an interview with The New York Times.

Ottawa announced last week that it was making changes to one of its immigration programs for high-wage occupations, such as engineers and electricians, to increase numbers and drive economic growth.

The federal government is expected to announce its immigration plans for 2027 to 2029 on Nov. 1.

“Without a change in policy direction, there is a risk that the real estate market will continue to suffer not only from low population growth, but also from rising interest rates, high construction costs and persistent geopolitical uncertainty,” King said.

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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.

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