Toronto's Housing Downturn: A Buyer's Opportunity in a Trade War-Scarred Market?

The Canadian housing market, particularly in Toronto and Calgary, has become a battleground for forces of trade tension, economic uncertainty, and supply-demand imbalances. As home prices in Toronto decline for the fourth consecutive year, and Calgary records its first annual price drop in five years, investors are left to navigate a complex landscape of risk and reward. For opportunistic buyers, this may mark a rare entry point—but the risks for current holders remain stark. Let's dissect the data and stress-test scenarios to determine where value lies.

The Trade War's Role in Prolonging the Correction

The U.S.-Canada trade war has cast a shadow over housing markets since 2023, exacerbating economic anxieties and delaying buyer decisions. In Toronto, the MLS Home Price Index (HPI) has fallen 4.4% since December 2024, with condos—already oversupplied due to new developments—accounting for much of the decline.

. The trade war's impact is not merely cyclical; it has prolonged the correction by eroding buyer confidence and slowing population growth, key drivers of demand.

Calgary, while less trade-exposed, has also faced headwinds. Its HPI dipped 1.4% year-over-year in April 光5, marking its first decline since 2020. Unlike Toronto, Calgary's issues stem from energy sector volatility and a surplus of new housing starts, which have outpaced population growth. Both markets now face a critical question: Will prices stabilize, or is deeper decline inevitable?

Supply-Demand Imbalances: A Tale of Two Cities

Toronto: Condos in Crisis, Suburbs Holding Steady

• Condos: Toronto's condo inventory has surged to a 7.2-month supply (vs. 4.3 for detached homes), with prices down 2.8% annually. Overbuilding and reduced investor activity have created a glut, particularly in core urban areas.
• Suburbs: Detached homes in outer regions (e.g., Mississauga, Brampton) are less impacted, with prices down just 1-2% annually. These areas remain affordable compared to downtown Toronto and are seeing modest buyer interest.

Calgary: A Balanced Market with Regional Divides

• Urban Core: Detached homes in prime locations held steady (+1% annually), buoyed by limited supply.
• Suburbs: Airdrie and Cochrane saw prices dip 2% annually due to oversupply, while Okotoks—a smaller, sought-after suburb—held up (+2%). Calgary's balanced inventory (2.6 months city-wide) offers buyers more negotiation power.

Opportunities for Buyers: A Strategic Entry Point?

For long-term investors, the current downturn presents opportunities—if risks are managed:

1. Suburban Toronto:
2. Why? Lower-priced detached homes in suburbs (e.g., Brampton) offer better value with 4.3 months of inventory.

3. Risk Mitigation: Focus on areas with job growth (e.g., tech hubs in Vaughan) to hedge against further declines.

4. Calgary's Core:

5. Why? Prime detached homes in Calgary are 35% cheaper than Toronto's, yet less exposed to condo oversupply.

6. Risk Mitigation: Avoid North East neighborhoods, where inventory exceeds 4 months and prices are dropping.

7. Timing the Bottom:

8. Indicator to Watch: Months of inventory. A drop below 4 months for condos in Toronto or 2 months for Calgary detached homes could signal stabilization.

Risks for Holders: Stress-Test the Downside

Scenario 1: Pessimistic Outlook (Trade War Escalates)

• Impact: Further declines of 5-10% in Toronto condos, with Calgary's energy sector-driven downturn pushing prices down 3-5%.
• Mitigation: Holders should consider selling non-core assets (e.g., overpriced downtown condos) and pivot to suburbs or Calgary's urban core.

Scenario 2: Optimistic Outlook (Trade Tensions Ease)

• Impact: Toronto prices stabilize by late 2025, with a rebound possible in 2026 as mortgage rates fall. Calgary could see modest growth (+1-2%) if energy demand recovers.
• Mitigation: Holders in well-located properties (e.g., Toronto's suburbs or Calgary's City Centre) should stay patient.

Key Risk: Rising Mortgage Rates

• The Bank of Canada's policy rate is expected to remain at 2.75% through 2025, but if inflation resurges, rates could rise further. Higher borrowing costs would prolong the downturn.

Investment Advice: Act with Caution

• Buyers:
• Go for suburbs and undervalued condos in Toronto, but avoid areas with >6 months of inventory.
• In Calgary, prioritize urban core detached homes and avoid oversupplied suburbs like North East.

• Lock in rates early: If buying, secure a fixed mortgage before potential rate hikes. Historical data shows that when the Bank of Canada's rate decisions meet or exceed expectations, a buy-and-hold strategy for six months has delivered an average annual return of 16.64%—though with significant volatility (max drawdown of 39.06%)—highlighting the importance of timing entries around these policy decisions.

• Holders:

• Sell speculative assets: Overpriced condos or homes in declining neighborhoods.
• Hedge with rentals: Convert secondary properties into rentals to offset price declines.

Final Take

Toronto's housing market is in a “material correction,” but it's not a crash—yet. Calgary, by contrast, offers a more balanced risk-reward profile. Both markets are testing buyer resolve, but strategic investors who focus on affordability, location, and macro trends can find undervalued assets. The trade war's end—or prolongation—will be the ultimate decider. For now, patience and precision are key: historical backtests confirm that tactical entries around pivotal rate decisions can yield strong returns, but with risks that demand careful hedging.

Data sources: Canadian Real Estate Association (CREA), Royal Bank of Canada (RBC) Economics, Toronto Regional Real Estate Board (TRREB).