On the Radar: Could Canada’s Shrinking Population Change the Outlook for Mortgage Rates?

Capital Markets update
Mar 27, 2026

First National Financial LP

Quick Takes:

Canada’s population fell by roughly 102,000 in 2025, the first annual decline on record, driven by a federal crackdown on temporary residents.
Home prices have now fallen for 15 consecutive months, with the national MLS Home Price Index down 4.8% year over year and Toronto down 7.9%.
Rents have dropped for 17 straight months to a 33-month low, as fewer international students and workers means fewer renters in Toronto and Vancouver.
While the Iran conflict, tariffs, and inflation dominate the near-term rate outlook, this demographic shift is quietly removing the demand that the housing market needs to recover.

The headlines this month have centred on the war in the Middle East, surging oil prices, and an uncertain trade relationship with the United States.

Statistics Canada reported on Wednesday, March 18 that the country’s population fell by roughly 102,000 people in 2025. That makes it the first annual population decline since the agency began keeping records in the 1940s.

The same week, the Canadian Real Estate Association released February housing data showing prices falling for a 15th straight month. Home resales slipped another 1.3 percent while new listings dropped 3.9 percent. Inventory sits at a six-year high.

These two stories are connected. Fewer people in the country means fewer renters, fewer buyers, and less pressure on housing. For Canadian mortgage holders, the question is whether this demographic retreat could reshape the rate outlook even after the geopolitical dust settles.

The Population Numbers

The headline is striking. Canada lost about 102,000 people on net in 2025, according to Statistics Canada’s quarterly population estimates released March 18. As of January 1, the country’s population stood at nearly 41.5 million.

The decline was driven almost entirely by the departure of temporary residents. More than 461,000 non-permanent residents left Canada on a net basis in 2025, including international students and temporary foreign workers. This followed a federal crackdown that began in 2024 to reduce the temporary resident share from 7.6 percent to 5 percent by the end of 2027.

The fourth quarter was the sharpest. In the final three months alone, the temporary resident population shrank by more than 171,000. That brought their share of the total population down to 6.4 percent, still above the federal target.

Permanent immigration provided a partial offset. Canada welcomed roughly 394,000 permanent residents in 2025. However, that figure was down 18.6 percent from 2024 as Ottawa also tightened permanent admission targets.

The pain was not evenly spread. Ontario and British Columbia both saw population declines of 0.7 percent, because both provinces attracted a disproportionate share of temporary residents during the boom years. Alberta was the only major province to grow, thanks to interprovincial migration.

What a Shrinking Population Does to Housing

Population growth has been the backbone of Canadian housing demand for years. Between 2022 and 2024, annual growth exceeded 3 percent, and that wave of arrivals absorbed rental supply, pushed up prices, and fuelled a construction boom. Now the engine is running in reverse.

CREA’s February housing data confirms the impact. Nationally, the composite MLS Home Price Index fell 0.6 percent month over month and 4.8 percent year over year. Prices have now declined for 15 consecutive months, erasing 20 percent of their value since the early-2022 peak.

The hardest-hit markets are also the ones losing the most people. Toronto’s benchmark index was down 7.9 percent year over year, with neighbouring Mississauga, Hamilton-Burlington, and the Niagara Region tracking similar declines of 7.5 to 7.7 percent. Vancouver fell 6.8 percent.

The sales-to-new-listings ratio nationally sits at 48 percent, firmly in buyer’s market territory. Toronto’s ratio dropped to just 34 percent. Inventory stands at a six-year high of five months of supply, according to RBC Economics.

The rental market tells the same story. According to Rentals.ca and Urbanation, average asking rents across Canada fell to $2,030 in February, hitting a 33-month low after 17 consecutive months of decline. The exodus of international students and foreign workers has left vacant units in the very cities where rents were rising the fastest.

Montreal remains an outlier, with prices still climbing at 5.9 percent year over year. Prairie markets such as Saskatoon and Regina also show resilience. But these pockets of strength do not offset the weight of Ontario and British Columbia, which together make up the bulk of national housing activity.

How This Connects to Mortgage Rates

Start with variable rates. The Bank of Canada’s overnight rate is at 2.25 percent, and it has held there since October. Governor Macklem said on March 18 that the economy is expanding “at a slower pace than forecasted,” with the unemployment rate at 6.7 percent.

Population decline adds to that downside risk. Fewer people means less consumer spending, less rental income, and less construction activity. In a normal environment, all of that would push the Bank to cut.

However, the Iran conflict has sent Brent crude past US$100, and tariff uncertainty is clouding the inflation picture. As a result, the Bank cannot ease when energy prices threaten to push headline CPI sharply higher.

So population decline strengthens the case for rate cuts but cannot unlock them. The growth side of the Bank’s equation is softening, yet the inflation side is blocked by forces beyond Canada’s borders. Variable-rate holders remain in a holding pattern.

For fixed rates, the story runs through bond yields. The Government of Canada 5-year yield sat at 3.12 percent on March 25, and the 10-year was at 3.48 percent. Both have risen roughly 40 and 30 basis points respectively since last month, driven by the oil shock and elevated U.S. Treasury yields.

Weaker domestic housing demand does not directly lower bond yields. Those are set by inflation expectations, global capital flows, and the Federal Reserve’s posture. Because the Fed held at 3.50 to 3.75 percent last week with its dot plot projecting only one cut this year, a floor remains under Canadian yields.

Where demographics do matter for fixed rates is on the spread side. Lenders price fixed mortgages off GoC yields plus a risk premium, and if housing demand keeps falling while defaults remain low, competitive pressure could narrow that spread over time. Still, this is a slow-moving force, not a quick fix.

What Could Change the Picture

The near-term rate outlook is still dominated by three big forces. First, the Iran conflict and its effect on oil prices. If the Strait of Hormuz reopens and crude falls back toward the mid-US$70s, the Bank of Canada has some motivation to consider a cut.

Second, the U.S. tariff review. A deterioration in trade relations would weaken Canadian exports and GDP, strengthening the case for lower rates. But retaliatory tariffs could also push up import costs, complicating the Bank’s calculus.

Third, the next round of data. The March CPI print lands April 20, and the April 8 labour force survey will show whether job losses are accelerating. Population decline is the backdrop to all of this, quietly sapping demand while the louder forces fight over the direction of rates.

One scenario worth watching: if the geopolitical risks fade and inflation comes back down, the Bank could resume cutting. In that world, housing would normally rebound. But a rebound needs buyers, and population decline is removing them.

As a result, the recovery may be slower and more uneven than past cycles, especially in Toronto and Vancouver. These are the markets where the population loss is steepest and where inventory has piled up the most.

Bottom Line

Canada’s first population decline on record is not the kind of event that moves mortgage rates next week. The war in Iran, the tariff standoff, and the Bank of Canada’s inflation dilemma are still in the driver’s seat.

But demographics shape where housing goes once the dust settles. With 461,000 temporary residents gone, home prices falling for 15 months, rents at a 33-month low, and inventory at a six-year high, the demand side of Canadian housing has taken a structural hit.

For variable-rate holders, the case for rate cuts keeps building. The Bank just cannot act on it yet. Meanwhile, fixed rates remain stuck at elevated levels because bond yields are driven by global forces that have nothing to do with Canadian housing.

The longer population stays flat or declining, the harder it becomes for housing to mount a strong recovery. Even when rates eventually come down, the people may not be there to drive it.

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