The number of home sales recorded over Canadian MLS® Systems declined 2.7% m/m in December. On an annual basis, transactions totalled 470,314 units last year, a 1.9% decrease from 2024, despite a series of Bank of Canada rate cuts.

“There doesn’t appear to have been much rhyme or reason to the month-over-month decline in home sales in December, which was simply the result of coincident but seemingly unrelated slowdowns in Vancouver, Calgary, Edmonton, and Montreal,” said Shaun Cathcart, CREA’s Senior Economist. “For that reason, it would be prudent for market observers to resist the temptation to trace a line from the end of 2025 into 2026. Rather, we continue to expect sales to move higher again as we get closer to the spring, rejoining the upward trend that was observed throughout the spring, summer, and early fall of 2025.”

New supply declined by 2% on a month-over-month basis in December, marking a fourth straight monthly drop. Combined with a slightly larger decrease in sales activity in December, the sales-to-new-listings ratio eased to 52.3% from 52.7% in November. This remains close to the long-term average national sales-to-new listings ratio of 54.9%. Readings roughly between 45% and 65% are generally consistent with balanced housing market conditions.

There were 133,495 properties listed for sale on all Canadian MLS® Systems at the end of December 2025, up 7.4% from a year earlier but 9.9% below the long-term average for that time of year. Inventories have been falling since May 2025 owing to the mid-year rally in demand, meaning active listings could be back posting year-over-year declines around the time this year’s spring market gets going.

“While we remain in the quiet time of year for a little while longer, the spring market is now just around the corner, and it is expected to benefit from four years of pent-up demand, and interest rates that at this point are about as good as they are going to get,” said Valérie Paquin, CREA Chair. “Barring any further major uncertainty-causing events, that means we should see a more active market this year.”

There were 4.5 months of inventory on a national basis at the end of December 2025, up slightly from 4.4 months, which had been the measure since August. The long-term average for this measure of market balance is 5 months of inventory. Based on the measure of one standard deviation above and below that long -term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

The National Composite MLS ® Home Price Index (HPI) fell by 0.3% between November and December 2025. It was similar to the dip recorded in November and could reflect some sellers making price concessions to sell properties before the end of the year. Most of the overall price softening in December came from markets in Ontario’s Greater Golden Horseshoe region, which was hit hard by US tariffs.

The non-seasonally adjusted National Composite MLS® HPI was down 4% from December 2024. Under the surface, year-over-year declines are larger for condo apartments and townhomes, and smaller for one- and two-storey detached homes.

Today’s data end a year that saw house prices drift lower despite falling interest rates, as a simmering trade war with Canada’s largest trading partner caused higher unemployment and considerable job uncertainty. Though US tariffs apply to a limited volume of Canadian goods, and the economy didn’t tip into a recession, the unpredictability of President Donald Trump’s trade policy has stoked a sense of economic insecurity.

In some regions, the price decline has now wiped out a sizable proportion of the gains homeowners saw during the torrid Covid market from 2020 to 2022, when overnight interest rates were reduced to a record-low 25 basis points. Back then, ultralow interest rates caused home prices to surge, particularly in smaller cities to which remote workers fled to take advantage of a lower cost of living.

Vancouver and Toronto remain by far the most expensive large cities. The benchmark price in Greater Vancouver was C$1.14 million in December. In the Toronto region, it was C$962,300 – down about 6% from a year earlier.

With many regional markets soft, sellers are now pulling back. New listings dropped 2% in December from the previous month, the fourth straight monthly decline. But the total number of homes on the market last month was still 7.4% higher than the previous year. That’s the equivalent of about 4.5 months of inventory.

We concur with the view that there is considerable pent-up demand among potential first-time buyers who will likely dip their toe in the market once winter passes. This year, we also see a record volume of refinances and renewals, which will increase monthly mortgage payments and dampen household purchasing power.

The jobless rate rose 0.3 percentage points to 6.8%, as more people searched for work. The increase in the unemployment rate in December partially offsets a cumulative decline of 0.6 percentage points in the previous two months. Employment rose among people aged 55 and older, while it fell among youth aged 15 to 24.

Full-time employment rose by 50,000 (+0.3%) in December, while part-time employment fell by 42,000 (-1.1%). The decline in part-time work in the month partially offsets a cumulative gain of 148,000 (+3.9%) in October and November. Over the 12 months to December 2025, part-time employment rose at a faster pace (+2.6%; +99,000) than full-time employment (+0.7%; +128,000).

In December, there was little change in the number of private- and public-sector employees, as well as in the number of self-employed workers.

There were 1.6 million people unemployed in December, an increase of 73,000 (+4.9%) from November.

The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—rose by 0.3 percentage points to 65.4%. On a year-over-year basis, the labour force participation rate was unchanged in December. The unemployment rate for youth aged 15 to 24 rose 0.5 percentage points to 13.3% in December, as fewer youth were employed (-27,000; -1.0%). Labour market conditions had previously improved for youth in October and November, with employment rising by 70,000 (2.6%) and the youth unemployment rate falling by 1.9 percentage points over this period.

In 2025, Trump’s tariff policy and negative attitude towards Canada have caused considerable uncertainty, having a marked deleterious effect on the Canadian economic outlook, particularly in sectors dependent on US demand. Job vacancies also fell during 2025.

The Bank of Canada has reiterated that its primary mandate is price stability, effectively leaving the task of closing the output gap to fiscal authorities. By early next year, it will likely become evident that fiscal support delivered through large capital projects is rolling out too slowly to offset near-term weakness in activity materially. If layoffs persist at their recent pace and the United States were to withdraw from the Canada‑US‑Mexico Agreement, the case for an additional round of monetary easing would strengthen.

Absent that downside scenario, the more plausible path is a slow and limited normalization of policy. Market pricing currently anticipates that the next move by the Bank of Canada will be to raise the overnight policy rate, but that is not likely until at least late this year.

In November, prices for services rose 2.8% year over year, compared with a 3.2% increase in October. Prices for travel tours declined 8.2% last month following a 2.6% increase in October. Monthly, these prices fell 12.0%, as lower demand for destinations in the United States put downward pressure on the index.

Prices for traveller accommodation fell to a greater extent on a year-over-year basis in November (-6.9%) than in October (-0.6%). The most significant contributor to the lower prices was Ontario (-20.2%), partially due to a base-year effect from a swift monthly increase in November 2024 (+11.0%), which coincided with a series of high-profile concerts in Toronto.

Lower prices for travel tours and traveller accommodation, in addition to slower growth for rent prices, put downward pressure on the all-items CPI.

Offsetting the slower growth in services on an annual basis were higher prices for goods, driven by increases in grocery prices and a smaller decline in gasoline prices. Excluding gasoline, the CPI rose 2.6% for the third consecutive month.

The CPI rose 0.1% month over month in November. On a seasonally adjusted monthly basis, the CPI increased 0.2%.

Grocery Price Inflation Highest Since the end of 2023

Prices for food purchased from stores rose 4.7% year over year in November after increasing 3.4% in October. The increase in November was the largest since December 2023 (+4.7%). The main contributors to the acceleration in November 2025 were fresh fruit (+4.4%), led by higher prices for berries, and other food preparations (+6.6%).

In November, prices for fresh or frozen beef (+17.7%) and coffee (+27.8%) remained significant contributors to overall grocery inflation on an annual basis. Higher beef prices have been driven, in part, by lower cattle inventories in North America. Adverse weather conditions in growing regions have affected coffee prices, which have risen amid American tariffs on coffee-producing countries, contributing to higher prices for refined coffee.

On a monthly basis, grocery prices rose 1.9% in November, the largest month-over-month increase since January 2023.

Acting as a bit of a counterweight, shelter costs—the earlier inflation villain—continue to moderate. Owned accommodation expenses are now up just 1.7% y/y, the slowest pace in almost a decade amid sagging home prices. Rent inflation remains sticky, but did tick down to 4.7% y/y last month. Keep an eye on electricity prices, which have been a major issue in the US, where AI data centers consume large amounts of electricity. The cost of electricity jumped 1.5% in the month and is now up 3.4% y/y. Telephone services have also leapt recently, after falling heavily the past two years; they are now up 11.7% y/y, the fastest increase since 1982.

The good news is that inflation will average just over 2% for all of 2025, down from 2.4% last year and the lowest annual tally in five years. The less-good news is that this moderation was mainly due to the removal of the consumer carbon tax, which alone shaved about half a point off the annual average.

This report confirms the Bank’s hold on the policy rate. Aside from food prices, inflation seems to be dissipating. The overall economy is in better-than-expected shape as the upward revisions in GDP since 2022 were largely the result of better than expected productivity growth–long a big concern for the Canadian economy.

The backdrop of better growth and lower inflation will keep the Bank of Canada on hold for most of 2026, as the next move in rates is likely to be a hike, but not until late next year. In the meantime, the biggest loser in the past year has been the housing market.

Today’s release of existing home sales by the Canadian Real Estate Association suggests particularly weak activity in Ontario, the region hardest hit by the tariff uncertainty. A cautious Bank of Canada will monitor the effect of rapidly rising food prices on inflation expectations. With any luck at all, core inflation will continue to decelerate, keeping the Bank on the sidelines for much of next year.

Hopefully, greater clarity on the Canada-Mexico-US agreement will be forthcoming in the New Year. Reduced uncertainty is the key ingredient required for a rebound in housing activity, particularly in the regions of Ontario and Quebec hardest hit by the tariffs.

Carney, a former central banker who took office in March, has committed to decreasing reliance on the U.S. by increasing military spending, accelerating infrastructure projects, speeding up housing construction, and enhancing business competitiveness. Given the current large deficits and a rising debt-to-GDP ratio, the government cannot afford higher long-term interest rates. Carney has promised to build a stronger Canada using domestic resources and labour, noting that only 40% of the steel used in Canada is produced domestically, and he intends to change that.

Champagne has cautioned that the public service will need to shrink as the government strives to balance the budget in the coming years. Carney also faces a political challenge in convincing some opposition members to support his budget or at least abstain from voting against it. His Liberal Party caucus is currently three seats short of a majority in the House of Commons, meaning it cannot pass the budget on its own.

Unemployment remains high, economic growth is weak, and exporters, along with business investment, are still struggling due to U.S. tariffs. Carney and Champagne must persuade citizens that jobs, real wages, and living standards will eventually improve if they can stimulate both domestic and foreign investment.

Last week, the Bank of Canada indicated that it is nearing the limit of monetary stimulus it can provide without triggering inflation. Governor Tiff Macklem has consistently stated that he sees fiscal policy as a more effective tool to counter the adverse effects of the trade war, which he perceives as a negative supply shock.

Ottawa has divided the budget into two parts: the operating budget and the capital spending budget. The operating budget covers the costs of running the federal government, which includes salaries, wages, rent, and interest payments on the debt. Carney has urged government leaders to review their operating budgets and eliminate unnecessary costs, which include downsizing the federal workforce.

A similar approach is used in countries like the United Kingdom and New Zealand, as well as by some provinces here at home. In principle, this shift could enhance transparency by allowing a better understanding of how public funds are allocated between day‑to‑day program spending and long‑term investments intended to boost future growth.

The capital spending budget is more complex because it’s harder to determine which expenditures will enhance growth and productivity. For instance, while the government is increasing defence spending to meet our NATO obligations, not all of it will contribute to productivity growth.

Ottawa’s agenda highlights major infrastructure projects, defence initiatives, housing, significant undertakings like pipelines, enhanced ports, and the development of the Ring of Fire. Federal leadership believes there is a role for industrial policy, as well as measures aimed at broad deregulation and tax competitiveness.

The budget presents both downside and upside scenarios. In the downside scenario, ongoing trade uncertainty could worsen the budgetary balance by $9.2 billion annually, while the upside scenario anticipates a $5 billion annual improvement contingent on easing trade uncertainties.

Finance Minister François-Philippe Champagne emphasized the need for “generational” investments, allocating $25 billion to housing, $30 billion to defence, and $115 billion to infrastructure over the next five years. He criticized proposals to cap the deficit at $42 billion, advocating instead for investments to drive future growth.

The 2025 budget introduces a new format that separates capital and operational spending, with capital investments accounting for 58% of this year’s combined deficit. This shift aims to catalyze $500 billion in private-sector investment. However, we should be skeptical that such animal spirits will materialize quickly, given the immense uncertainty about the future of the Canada-Mexico-US free trade agreement.

The budget pledges to balance operational spending in three years.

Ottawa has been running a “comprehensive expenditure review” to spend less on the day-to-day operations of the federal government. According to the budget, that plan will save $13 billion annually by 2028-29, for a total of $60 billion in savings and revenues over five years.

The budget promises more taxpayer dollars will go toward “nation-building infrastructure, clean energy, innovation, productivity and less on day-to-day operating spending.” This “new discipline” will help protect social benefits, the budget promises.

The public service will see a drop of about 40,000 positions over the coming years. The budget projects it will have 330,000 employees in 2028-29, down from the 368,000 counted last year.

To confront an anemic economic picture, the government says it’s “supercharging growth” and vows to “make Canada’s investment environment more competitive than the U.S.”

To that end, the budget introduces a “productivity super-deduction” tax measure that will allow companies to write off a larger share of capital investments more quickly.

There are also new measures specifically for writing off expenses for manufacturing or processing buildings, as well as a new capital cost allowance for liquefied natural gas (LNG) equipment and related buildings.

Build Baby Build
Fast-tracking nation-building projects: In close partnership with provinces, territories, Indigenous Peoples, and private investors, the government is streamlining regulatory approvals and helping to structure financing.

Additional Cuts to Immigration
Selling it as Ottawa “taking back control” over an immigration system that has put pressure on Canada’s housing supply and health-care system, budget 2025 promises to lower admission targets.

The new plan proposes to drastically reduce the target for new temporary resident admissions from 673,650 in 2025 to 385,000 in 2026.

The 2026-28 immigration levels plan would keep permanent resident admission targets at 380,000 per year, down from 395,000 in 2025.

Ending Some High-End Taxes
The government is also proposing to undertake a one-time measure to accelerate the transition of up to 33,000 work permit holders to permanent residency in 2026 and 2027.

“These workers have established strong roots in their communities, are paying taxes and are helping to build the strong economy Canada needs,” the budget notes.

To fill labour gaps, the Liberals’ plan includes a foreign credential recognition action fund to work with the provinces and territories to improve transparency, timeliness and consistency of foreign credential recognition.

It would also launch a strategy to attract international talent, including a one-time initiative to recruit over 1,000 highly qualified international researchers to Canada.

In addition, there were billions of dollars in increased defence spending, the details of which are still sketchy.

Nothing in this budget is surprising, as most of it has been telegraphed in recent weeks. The budget asserts that “the global trade landscape is changing rapidly, as the United States reshapes its economic relationships and supply chains around the world. The impact is profound—hurting Canadian companies, displacing workers, disrupting supply chains, and creating uncertainty that holds back investment. This level of uncertainty is greater than what we have seen in recent crises. Budget 2025 makes generational investments while maintaining Canada’s strong fiscal advantage—a foundation that allows us to invest ambitiously and responsibly, and build Canada’s economy to be the strongest in the G-7.”

Canada has the lowest net debt-to-GDP ratio among the G-7 and one of the smallest deficit-to-GDP ratios. Canada and Germany are the only two G-7 economies rated triple-A, a marker of strong investor confidence which helps keep our borrowing costs as low as possible. This is a time for bold actions to bolster Canada’s competitiveness. We have products the world needs. Hopefully, we can salvage a significant part of the trade agreement with the US, but the odds suggest we build the infrastructure necessary to trade our products worldwide.