Last week’s release of the July housing data by the Canadian Real Estate Association (CREA) showed good news on the housing front. Following a disappointing spring selling season, National home sales were up 3.8% in July from the month before, with Toronto seeing transactions rebound 35.5% since March. However, the total number of Toronto sales remains low by historical standards.

On a year-over-year basis, total transactions have risen 11.2% since March.

There is growing confidence that the Canadian economy will resiliently weather the tariff trauma. The Canadian dollar is up, and longer-term interest rates have edged downward in the past ten days. Traders are now anticipating a rate cut by the Federal Reserve in September.

Tuesday’s release of the Canadian CPI will provide another data point for the Bank of Canada. Economic growth has held up, in large part because much of the pain from tariffs has been confined to industries singled out for levies, including autos, steel and aluminum.

Shaun Cathcart, the real estate board’s senior economist, said, “With sales posting a fourth consecutive increase in July, and almost 4% at that, the long-anticipated post-inflation crisis pickup in housing seems to have finally arrived. The shock and maybe the dread that we felt back in February, March and April seem to have faded,” as people become less concerned about their future employment.

New Listings

New supply was little changed (+0.1%) month-over-month in July. Combined with the notable increase in sales, the national sales-to-new listings ratio rose to 52%, up from 50.1% in June and 47.4% in May. The long-term average for the national sales-to-new listings ratio is 54.9%, with readings roughly between 45% and 65% generally consistent with balanced housing market conditions.

There were 202,500 properties listed for sale on all Canadian MLS® Systems at the end of July 2025, up 10.1% from a year earlier and in line with the long-term average for that time of the year.

“Activity continues to pick up through the transition from the spring to the summer market, which is the opposite of a normal year, but this has not been a normal year,” said Valérie Paquin, CREA Chair. “Typically, we see a burst of new listings right at the beginning of September to kick off the fall market, but it seems like buyers are increasingly returning to the market.

There were 4.4 months of inventory on a national basis at the end of July 2025, dropping further below the long-term average of five months of inventory as sales continue to pick up. Based on 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.

Home Prices

The National Composite MLS® Home Price Index (HPI) was unchanged between June and July 2025. Following declines in the first quarter of the year, the national benchmark price has remained mostly stable since May.

The non-seasonally adjusted National Composite MLS® HPI was down 3.4% compared to July 2024. This was a smaller decrease than the one recorded in June.

Based on the extent to which prices fell off in the second half of 2024, look for year-over-year declines to continue to shrink in the months ahead.

Bottom Line

Homebuyers are responding to improving fundamentals in the Canadian housing market. Supply has risen as new listings surged until May of this year. Additionally, the benchmark price was $688,700, 3.4% lower than a year earlier. That decrease was smaller than in June, and the board expects year-over-year declines to continue shrinking, it said in a statement.

While many expect the Fed to ease in September, I’m not sure it will happen. The producer price index came in hotter than expected this week. Fed action will depend mainly on the personal consumption expenditures index (PCE), the Fed’s favourite measure of inflation, which will be out on August 29.

US stagflation worries have emerged with the release of the July employment report, which showed considerable weakness, enough to get the head of the Bureau of Labour Statistics fired. The likelihood of a BoC cut will increase if the Fed begins a series of easing moves as the administration is demanding.

Employment fell by 40,800 jobs in July, a weak start to the third quarter, driven by decreases in full-time work, with most of the decline in the private sector. The jobless rate held steady at 6.9%, even though the number of unemployed people fell. The monthly decline was the largest since January 2022, and excluding the pandemic, it’s the most significant drop in seven years.

The job loss was concentrated among youth ages 15 to 24 who have had a terrible time finding summer jobs this year. The unemployment rate for that group is a whopping 14.6%, the highest since September 2010 outside of the pandemic. The youth employment rate fell 0.7 percentage points to 53.6% in July—the lowest rate since November 1998, excluding the pandemic.

Trump’s tariff turmoil has halted so many crucial financial decisions. Potential homebuyers are deer-in-the-headlights despite the relatively low mortgage rates, strong supply of unsold homes, and lower prices. Potential move-up buyers similarly don’t take action despite the relatively strong bargaining power of buyers.

The employment rate—the proportion of the population aged 15 years and older who are employed—fell by 0.2 percentage points to 60.7% in July and was down 0.4 percentage points from the beginning of the year (61.1% in both January and February).

The number of employees in the private sector fell by 39,000 (-0.3%) in July, partly offsetting a cumulative gain of 107,000 (+0.8%) in May and June. There was little change in the number of public sector employees and in the number of self-employed workers in July.

The unemployment rate held steady at 6.9% in July, as the number of people searching for work or on temporary layoff varied little from the previous month. The unemployment rate had trended up earlier in 2025, rising from 6.6% in February to a recent high of 7.0% in May, before declining 0.1 percentage points in June.

Unemployed people continued to face difficulties finding work in July. Of the 1.6 million people who were unemployed in July, 23.8% were in long-term unemployment, meaning they had been continuously searching for work for 27 weeks or more. This was the highest share of long-term unemployment since February 1998 (excluding 2020 and 2021).

Compared with a year earlier, unemployed job seekers were more likely to remain unemployed from one month to the next. Nearly two-thirds (64.2%) of those who were unemployed in June remained unemployed in July, higher than the corresponding proportion for the same months in 2024 (56.8%, not seasonally adjusted).

Despite continued uncertainty related to tariffs and trade, the layoff rate was virtually unchanged at 1.1% in June compared with a year ago (1.2%). This measures the proportion of people who were employed in June but were laid off in July. In comparison, the layoff rate for the corresponding months from 2017-19, before the pandemic, averaged 1.2%.

There were fewer people in the labour force in July as many discouraged workers dropped out, and the participation rate—the proportion of the population aged 15 and older who were employed or looking for work—fell by 0.2 percentage points to 65.2%. Despite the decrease in the month, the participation rate was little changed on a year-over-year basis.

Despite continued uncertainty related to tariffs and trade, the layoff rate was virtually unchanged at 1.1% in July compared with 12 months earlier (1.2%). This represents the proportion of people who were employed in June but had become unemployed in July as a result of a layoff. In comparison, the layoff rate for the corresponding months from 2017 to 2019, before the pandemic, averaged 1.2% (not seasonally adjusted).

There were fewer people in the labour force in July, and the participation rate—the proportion of the population aged 15 and older who were employed or looking for work—fell by 0.2 percentage points to 65.2%. Despite the decrease in the month, the participation rate was stable on a year-over-year basis.

Employment declined in information, culture and recreation by 29,000 (-3.3%). In construction, employment decreased by 22,000 (-1.3%) in July, following five consecutive months of little change. The number of people working in construction in July was about the same as it was 12 months earlier.

Employment fell in business, building and other support services (-19,000; -2.8%), marking the third decline in the past four months for the industry. Employment also fell in health care and social assistance (-17,000; -0.6%), offsetting a similar-sized increase in June. Compared with 12 months earlier, employment in health care and social assistance was up by 54,000 (+1.9%) in July.

Employment rose in transportation and warehousing (+26,000; +2.4%) in July, the first increase since January. On a year-over-year basis, employment in this industry was little changed in July.

The number of jobs declined in Alberta (-17,000; -0.6%) and British Columbia (-16,000; -0.5%), while it increased in Saskatchewan (+3,500; +0.6%). There was little change in the other provinces.
Total hours worked in July were little changed both in the month (-0.2%) and compared with 12 months earlier (+0.3%).

Average hourly wages among employees increased 3.3% (+$1.17 to $36.16) on a year-over-year basis in July, following growth of 3.2% in June (not seasonally adjusted).
Employment also declined in May in transportation and warehousing (-16,000; -1.4%); accommodation and food services (-16,000; -1.4%), and business, building and other support services (-15,000; -2.1%).

Bottom Line

The two-year government of Canada bond yield fell about four bps on the news, while the loonie weakened. Traders in overnight swaps fully priced in a quarter-point rate cut by the Bank of Canada by year-end, and boosted the odds of a September cut to about 40%, from 30% previously.

Oddly enough, manufacturing payrolls rose in July despite the tariffs. This was the second consecutive monthly gain for a sector that one would expect to be most affected by the trade war. Manufacturing employment has fallen year-over-year.

This was an unambiguously weak report, but it comes hard on the heels of a robust report. Averaging the two months of data suggests there is an excess supply in the economy. But we will need to see a decline in core inflation for the Bank of Canada to resume cutting interest rates.

Traders are now expecting the US central bank to cut interest rates when it meets again in September. With any luck at all, this will pressure the Bank to cut rates as well, but only if the interim two inflation reports show an improvement, and the labour market remains weak. The next jobs report is on September 5, and the Bank of Canada meets again on September 17.

Most market participants did not expect the Bank of Canada to cut rates in late July. Incoming economic data paint a somewhat stronger picture. Consumer sentiment remains relatively weak in the face of considerable tariff uncertainty, despite the record highs achieved by both the US and Canadian stock markets.

Business investment has slowed considerably, and layoffs have commenced in the hardest hit sectors (think autos, aluminum and steel).

Longer-term interest rates have risen considerably since March, and housing activity remains tepid in many regions of the country. The recently released June housing data show a continued rise in sales, a fall in new listings, and flat home prices. This could well signal a turnaround in housing as we approach 2026.

While Canada’s employment report was not quite as strong as the rip-roaring headline 83,100 job gain would suggest, it nevertheless reflects the resiliency of the Canadian economy. Specifically, the pullback in the unemployment rate (down 0.1 ppt to 6.9%) is very encouraging. It’s rare for the jobless rate to retreat, even for a month, during a recession. Moreover, the unemployment rate is arguably the most reliable data point in the monthly Labour Force Survey.

June’s jobs report showed that public administration employment continues to grab an increasing share of the job market. Since 2016, public administration employment has increased by almost 40%, or more than twice the growth seen in the rest of the job market. Note that we use ‘public admin’ here, not the ‘public sector’, since the latter encompasses healthcare and education jobs as well. While the pandemic widened the gap, public administration has been outpacing job growth both before the disruption and after 2022.

Looking ahead, this source of job growth is likely to diminish, as federal hiring is expected to slow down. The Liberal platform targeted $13 billion in savings from “government productivity” by FY28/29, and some of that is presumably going to happen sooner due to more immediate budget pressure. We are likely to see Canadian federal budget deficits of over $60 billion.

The latest inflation data for June torpedoed the Bank of Canada’s potential easing on July 30. Headline CPI inflation posted a 1.9% year-over-year pace, up from 1.7% in May. More onerously, the core measures of inflation averaged 3.1% year-over-year gains, much too high for the Bank’s liking.