On the Radar: CREA Slashes 2025 Sales Forecast as Housing Recovery Stalls

Canada’s housing market just got a wake-up call. This week, the Canadian Real Estate Association (CREA) revised its 2025 outlook, forecasting 469,503 home sales—a 3% drop from 2024. That’s a sharp turnaround from the 8% growth they projected in January, and even April’s flat forecast. Behind the shift? High mortgage rates, trade risks, and stubborn inflation—all putting the brakes on buyer demand.

Let’s break down what’s happening and what it means for investors and buyers watching the market.

Key Highlights:

• CREA now expects 469,503 home sales in 2025, down 3% from last year.
• The five-year Government of Canada bond yield remains above 3%, keeping mortgage rates high.
• June inflation came in at 1.9%, not low enough to trigger another rate cut.
• Until core inflation dips and yields fall, mortgage stress tests will continue capping buying power and delaying a full recovery.

GTA Data Paints a Stark Picture

The slowdown is especially visible in major markets like Toronto. According to Urbanation’s Q2-2025 condo market report:

• Only 502 new condo units sold, down 69% from last year and a staggering 91% below the 10-year average.
• Unsold inventory hit a record high with 2,478 move-in ready units—roughly five years of supply.
• Average asking prices dropped 6% year-over-year to $1,212 per square foot.

Nationally, activity is sluggish. Sales rose a modest 2.8% from May and 3.5% from last June, but CREA now expects the average home price to fall 1.7% to roughly $677,000—about $10,000 lower than its April forecast.

Bond Yields and Mortgage Pressure

The Bank of Canada paused its rate-cut cycle after its June move, holding the overnight rate at 2.75%. With core inflation still near 3% and new U.S. trade threats emerging, the odds of another cut at the July 30 meeting are low—under 6%, according to market pricing.

This matters because fixed mortgage rates follow bond yields. And those remain elevated. Until we see the 5-year bond yield dip below 3%, mortgage costs will stay firm. Worse, the federal stress test still requires borrowers to qualify at 2% above their actual rate, meaning every 25 basis point rise cuts buying power by roughly 3%.

Tariff Shock Adds to Uncertainty

External shocks aren’t helping. On July 10, former U.S. President Donald Trump announced a 35% tariff on Canadian goods, effective August 1. The move rattled markets and pushed up yields further, as investors demand a premium for long-term risk exposure tied to trade uncertainty.

These trade tensions only reinforce a broader theme: rate relief is on hold until inflation and geopolitical risks cool off.

What History Tells Us

This isn’t the first time housing has paused while waiting for a break on rates.

• In 2008–09, the Bank of Canada cut rates by 425 basis points during the global financial crisis. Mortgage rates dropped and sales rebounded within a year.
• In 2015, after an oil shock, two rate cuts helped stabilize the market.
• But in 2022, surging inflation led to aggressive tightening—raising rates from 0.25% to 4.25% in ten months. The result? 2023 sales plunged nearly 20%.

The lesson: Real estate is highly rate-sensitive. When inflation is under control, the Bank can step in to boost demand. But until that day comes, today’s high rates, stress tests, and global risks will keep the recovery in check.

Bottom Line

CREA’s downgrade confirms what many in the industry have been feeling on the ground: buyers are hesitant, inventory is stacking up, and affordability is still under pressure.

If you’re a buyer, seller, or investor, the key takeaway is this: watch inflation and bond yields closely. A shift in either could kick-start a turnaround—but until then, we’re in a holding pattern.

Want to talk strategy? Whether you're thinking of investing, buying, or just staying informed, let’s connect and make a plan that works in today's market.