Home prices could stabilize in 2027 as mortgage rates near peak: National Bank

Canadian home prices could begin stabilizing in 2027 as mortgage rates approach their peak, though weak population growth and regional economic pressures continue to weigh on housing demand, according to National Bank chief economist and strategist Stéfane Marion.

Speaking Monday at Mortgage Professionals Canada’s National Mortgage Conference in Calgary, Marion said the housing market is facing an unusual combination of elevated borrowing costs, sharply slowing population growth and regional economic weakness.

But he also argued that much of the recent increase in mortgage rates may be behind Canadians, while a renewed push to attract investment could help restore confidence and housing demand.

“The good news is I think we seem to be top-ish on these rates, so I don’t see another 100 basis points of increase in mortgage rates,” Marion told attendees.

He noted that 5-year fixed mortgage rates have reached their highest levels since 2024, reflecting rising global bond yields and a normalization of the spreads lenders charge above government bond yields.

Higher rates have also pushed borrowers toward shorter mortgage terms. Marion said 5-year mortgages now account for less than 20% of outstanding mortgages, the lowest share he has seen in his career.

He said the shift reflects Canadians’ growing sensitivity to higher interest rates.

Marion also cautioned against an immediate Bank of Canada rate hike, arguing that policymakers need to consider the weakness in housing and uncertainty surrounding U.S. trade policy.

“I don’t think that the Bank of Canada should be hiking next week,” he said, referring to the October 28 policy decision. “And if they do hike, they can’t be too aggressive given the Canadian situation.”

While his outlook allows for three rate hikes, Marion believes longer-term bond yields are nearing their highs and that much of the recent increase in borrowing costs is behind Canadians.

Population slowdown weighs on housing demand

Marion identified the abrupt slowdown in Canada’s population growth as one of the biggest challenges facing the housing market.

After growing by roughly 1.2 million people annually just a few years ago, Canada’s population growth has slowed to approximately 200,000, he said. The slowdown has been particularly pronounced among those aged 25 to 54, a demographic he described as critical to home purchases and mortgage demand.

While employment among this age group has reached a record high, the lack of population growth is limiting the number of potential buyers entering the market.

Marion said population growth has slowed to virtually zero in Ontario, Quebec and British Columbia, while the Prairie and Atlantic provinces have shown greater resilience.

He pointed to Hamilton, where prices have fallen approximately 23% from their 2022 peak, while Toronto and Vancouver have also been disproportionately affected by changes in immigration policy.

Marion also warned that uncertainty surrounding U.S. tariffs is weighing on housing demand, particularly in manufacturing-dependent regions where households may be reluctant to buy amid concerns about job security.

“There’s no such thing as a national market for the housing sector,” he said, emphasizing the need to consider regional conditions when assessing the outlook.

Despite the weak demand backdrop, Marion expects home prices to stabilize heading into 2027, following an approximately 4% decline in the national composite index this year.

One reason is that construction costs are unlikely to fall significantly, even if housing demand remains subdued.

Marion warned that Ottawa’s plans to accelerate infrastructure, energy and industrial projects could intensify competition for construction workers, potentially creating labour shortages and pushing building costs higher.

“How can I bring home prices much lower where construction costs will be impacted by labour shortages in the construction sector?” he asked.

He also suggested the federal government may need to revisit its immigration policies to ensure Canada has enough workers to carry out its planned investments.

Still, Marion cautioned that changing demographics could limit the extent of any recovery in home sales. As Canadians aged 55 and older account for a growing share of the population, housing turnover could remain below historical levels, making a return to more than 40,000 sales per month unlikely.

Investment and income growth key to housing recovery

Beyond interest rates and immigration, Marion argued that Canada’s longer-term housing outlook depends on reversing more than a decade of weak business investment.

He described the country’s failure to increase non-residential business investment as its most pressing economic challenge, even more significant than the recent slowdown in immigration.

“The solution for our country is making Canada investable again,” he said. “If I make [Canada] investable again at the economy-wide level, it means more jobs, more income, better confidence, and a stronger housing market.”

Marion pointed to recent federal initiatives aimed at accelerating project approvals, expanding electricity infrastructure, encouraging investment and strengthening domestic manufacturing.

He said the federal government’s plans could potentially unlock hundreds of billions of dollars in investment, with much of the economic benefit beginning to materialize in 2027.

During a question-and-answer session, Marion challenged the idea that further home price declines are necessarily the best way to restore affordability.

He pointed again to markets such as Hamilton, where homeowners have already experienced substantial declines in property values. “I can’t restore affordability anymore via price declines,” he said. “So the best we can hope for is higher income.”

Stronger employment and income growth, he suggested, would allow more households to qualify for mortgages without requiring another significant correction in home values.

Marion acknowledged that geopolitical tensions, trade disputes and rising global demand for capital could continue to put upward pressure on interest rates and construction costs.

“I’m the most optimistic on our country in over a decade for the outlook,” he said.

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Last modified: October 20, 2026