Higher borrowing costs are expected to restrain Canada's housing market through 2027, with TD Economics downgrading its forecasts for home sales and prices as government bond yields rise.
In its Provincial Resale Market Outlook, TD economist Rishi Sondhi said higher global bond yields are creating a more challenging environment for Canada's housing market. The increase in yields, which underpin fixed mortgage rates, is already weighing on activity, with Canadian home sales declining in August for the first time in six months.
TD Economics has raised its forecast for Government of Canada bond yields through 2027 compared with its June outlook, citing forces behind the recent increase in rates that are expected to persist. The revised forecast assumes the Bank of Canada remains on hold through 2027, with underlying inflation near its target and crude oil prices gradually easing.
Sales expected to remain below pre-pandemic levels
TD Economics now expects Canadian home sales to decline by about five per cent in 2026 and says the market is unlikely to recover that lost ground in 2027. Average Canadian home prices are expected to remain roughly flat this year, while price growth next year is forecast to remain below two per cent.
The outlook calls for modest quarterly gains in both sales and average prices during 2027, but TD Economics expects sales to remain well below pre-pandemic levels throughout the year. The anticipated improvement is expected to be supported partly by the release of pent-up demand.
The forecast also assumes Canadian bond yields begin to decline in the fourth quarter of 2026 and continue moving lower through 2027. TD Economics said job markets are expected to improve gradually, although its employment outlook has been downgraded following a recent escalation in the Canada-U.S. trade conflict.
B.C. and Ontario expected to see sales recovery
TD Economics expects home sales to increase in British Columbia and Ontario next year following declines in 2026, with pent-up demand expected to provide significant support to activity.
The report says rising sales should gradually rebalance the two markets, which are currently heavily weighted in favour of buyers, allowing prices to stabilize following declines in 2026. However, price gains are expected to remain below one per cent in both provinces, constrained by weak population growth.
In Quebec, housing activity is cooling as economic weakness and affordability challenges weigh on the market. TD Economics also points to signs that households are becoming more cautious, including a rising household savings rate, and expects those factors to continue weighing on the market in 2027.
Alberta prices expected to rise about 3 per cent
In the Prairies, TD Economics expects Alberta home prices to increase by about three per cent in both 2026 and 2027, supported by relatively firm economic growth but constrained by higher interest rates.
The report notes that Alberta prices are up only about three per cent year-to-date despite higher oil prices supporting incomes in the province. In Manitoba, strained affordability and a soft economic backdrop are expected to keep price growth subdued, while relatively favourable affordability in Saskatchewan is expected to support firmer price gains.
Atlantic markets face affordability pressures
Housing markets in Atlantic Canada are also expected to face pressure from a combination of weak population growth, elevated borrowing costs and deteriorating affordability.
TD Economics expects quarterly annualized price growth of between one and two per cent in Nova Scotia, New Brunswick and Prince Edward Island. In Newfoundland and Labrador, prices are forecast to increase by about 1.5 per cent on an annual-average basis in 2027.
The report says part of that increase reflects weak momentum in 2026, which can affect the annual-average calculation. On a fourth-quarter-over-fourth-quarter basis, which TD Economics says provides a clearer indication of the 2027 trend, Newfoundland and Labrador prices are expected to rise about three per cent, supported by relatively favourable affordability.