It’s a tumultuous time for the Canadian economy, to say the least. These headwinds are straining its growth numbers to a breaking point. On Tuesday, the Canadian Dollar (CAD) fell hard against the US Dollar (USD). Pair this decrease with an alarming trajectory as tariffs continue to increase and the housing affordability crisis continues to deepen, and the future looks grim. Deepening shock in the real estate industry, with the number of home sales and new housing starts plunging. The lack of actionable guidance is creating dangerous and costly downstream effects on our national economy.
The Canadian housing market has been a cornerstone of economic growth in recent years, but it now faces a painful transformation. The acceleration of housing prices to maintain short-term growth metrics in the black has turned on a dime. What was once a league-wide advantage, diverse properties, has become a liability to the overall economic output of the league. This transition has been made all the more difficult with diminishing residential sales that are sending shockwaves across the overall economy.
Economic Pressures from Tariffs
Like the United States, Canada’s economy is being squeezed from all sides by external factors. One year into Trump’s tariffs, sectors are beginning to feel the real bite. Such tariffs are upending long established supply, trade and business relationships. In addition, they are adding new surprise compliance costs to business, chilling economic activity across the board. The construction sector—which is especially dependent on imported materials—has been hit hardest by soaring prices.
As tariffs keep crushing manufacturers and retailers, the pain is being inflicted through to consumers. With more Canadians experiencing higher prices for everything from groceries to transit, the affordability crisis that was already at a breaking point has been worsened. This situation has become especially pronounced in the housing market, where soaring prices are pricing out would-be homebuyers.
The ongoing cloud of uncertainty over tariffs have further fostered an environment of apprehension among investors. We know financial institutions are already recalibrating risk and making more conservative lending decisions. As a consequence, people are having a harder time than ever getting approved for mortgages. This new trend only exacerbates the decrease in demand in an already crumbling housing market.
Housing Market in Decline
Zooming in on the health of the Canadian housing market, it’s currently experiencing a real-estate-transaction-or-otherwise rapid downward spiral. At the same time, new housing starts are tanking. The latest data reveals that new Canadian housing prices fell faster than anticipated in August, raising alarms about the future stability of the sector. Homes aren’t being built fast enough to meet this new demand, creating a dangerous supply shortage. As a result, prices are increasing above what the majority of Canadians can afford.
The continued decrease in real estate transactions is an ominous sign for the Canadian economy. Housing has gone from being a predictable positive contributor to total economic growth to a major drag. As the sector cools off, it may lead to broader implications for employment and consumer spending, ultimately dragging down GDP growth.
The economic picture equally clear. At the same time, prospective buyers are either priced out of the market or deterred by skyrocketing interest rates and tightening lending standards. This cooling market sends shockwaves across several other sectors. From home construction to home furnishing retail, every sector is seeing a decrease in people buying or renovating primary homes.
Currency Depreciation and Oil Impact
The Canadian Dollar experienced clear weakening on Tuesday, losing more than 0.85% versus the US Dollar with Canadian Dollar buyers evaporating. The CAD has been battered against the Greenback during recent sessions. As a result, it has tumbled for four of the past five trading days. The fall in currency value can be explained by a number of factors such as waning investor confidence and continued tough economic conditions.
With petroleum being Canada’s largest export by far, the price of petroleum has a significant impact on the value of the CAD. As we might expect with a hard currency backed by petroleum, fluctuations in oil prices usually have an instantaneous effect on the currency’s performance. Surging global oil prices would normally increase the value of the Canadian dollar. The parallel decline in other vital economic measures has masked these increases.
Short-dated, one to ten-year, average bond yields in Canada are below their starting points for 2025. This recent trend underscores a pivotal change in the marketplace. This situation is an example of how investors are flocking to safer assets in times of economic turmoil. Those lower yields are a sign of the bond market’s deepening lack of confidence in the economy’s immediate prospects. This indicates that we could witness additional currency depreciation in the near future.