The latest New Housing Price Index (NHPI) for Canada, released on November 21, 2025, shows a month-over-month contraction of 0.40%. This figure is below the consensus estimate of flat growth and marks a sharper decline than October’s -0.20%. The NHPI tracks the price changes for new residential construction and is a critical gauge of housing sector health. The current reading is the largest monthly drop since May 2025, when prices also fell by 0.40%. Over the past year, the NHPI has averaged a modest decline of -0.20% per month, underscoring a persistent cooling trend.

Drivers this month

• Higher mortgage rates have dampened buyer demand, reducing upward price pressure.
• Construction cost inflation has moderated, limiting builders’ ability to raise prices.
• Regional disparities persist, with major urban centers like Toronto and Vancouver seeing sharper declines than smaller markets.

Policy pulse

The Bank of Canada’s recent rate hikes, pushing the overnight rate above 5%, have tightened financial conditions. The NHPI’s decline aligns with the central bank’s goal of cooling housing demand to curb inflation. The index remains below the 12-month average, signaling that housing price growth is well off the pace needed to sustain inflationary pressures.

Market lens

Immediate reaction: The Canadian dollar (CAD/USD) weakened 0.30% in the first hour post-release, reflecting concerns over slower economic growth. Short-term bond yields edged lower, with the 2-year yield dropping 5 basis points as markets priced in a slower pace of rate hikes.

The NHPI’s contraction coincides with broader macroeconomic signals pointing to a cooling Canadian economy. Core inflation has eased slightly to 3.10% YoY from 3.30%, while unemployment remains steady at 5.50%. Housing starts have declined 7% year-over-year, and residential investment growth slowed to 0.50% QoQ in Q3 2025. These foundational indicators suggest that the housing market is adjusting to tighter monetary policy and elevated borrowing costs.

Monetary policy & financial conditions

The Bank of Canada’s aggressive tightening cycle, with five consecutive 25 basis point hikes since June, has pushed mortgage rates above 6%. This has increased monthly debt servicing costs, reducing affordability and demand for new homes. Credit availability has tightened, and lending standards have become more stringent, further weighing on housing prices.

Fiscal policy & government budget

Federal and provincial governments have introduced targeted measures to support affordable housing, including subsidies and tax incentives. However, these have yet to offset the broader impact of monetary tightening. The government’s budget remains focused on deficit reduction, limiting large-scale fiscal stimulus that could buoy housing demand.

External shocks & geopolitical risks

Global economic uncertainty, including slower growth in the US and China, has dampened export prospects and investor sentiment. Rising energy prices and geopolitical tensions in Eastern Europe add inflationary risks but have not yet materially affected Canadian housing prices. However, any escalation could further pressure financial markets and economic growth.

Drivers this month

• Mortgage rate hikes contributed approximately -0.25 percentage points to the NHPI decline.
• Reduced construction input costs subtracted -0.10 percentage points.
• Regional market corrections accounted for -0.05 percentage points.

Policy pulse

The NHPI’s decline reinforces the Bank of Canada’s tightening stance. The index remains below the inflation target zone, indicating that housing price growth is unlikely to reignite inflationary pressures soon.

Market lens

Immediate reaction: The Canadian 2-year bond yield fell from 4.85% to 4.80% within the first hour, reflecting a reassessment of future rate hike probabilities. The CAD/USD exchange rate slipped from 0.76 to 0.75, signaling cautious sentiment among currency traders.

Looking ahead, the NHPI’s trajectory will depend on several factors, including monetary policy, economic growth, and housing demand. We outline three scenarios:

Bullish scenario (20% probability)

• Monetary policy loosens by mid-2026 as inflation eases faster than expected.
• Housing demand rebounds due to improved affordability and fiscal incentives.
• NHPI stabilizes and returns to modest positive growth (0.10% MoM) by Q2 2026.

Base scenario (55% probability)

• Monetary policy remains restrictive through 2026, with gradual rate cuts only in late 2026.
• Housing demand remains subdued amid high borrowing costs.
• NHPI continues modest declines averaging -0.10% to -0.20% MoM through mid-2026.

Bearish scenario (25% probability)

• Economic growth slows sharply due to external shocks or financial stress.
• Housing market enters a deeper correction with NHPI declines exceeding -0.50% MoM.
• Residential investment contracts, dragging GDP growth below 1% in 2026.

Structural & long-run trends

Canada’s housing market faces structural headwinds, including demographic shifts, urbanization limits, and evolving consumer preferences. Long-term affordability challenges and supply constraints will continue to shape price dynamics. The NHPI’s recent weakness may accelerate market adjustments, but underlying demand fundamentals remain intact over the medium term.

The November 2025 NHPI print confirms a deepening correction in Canada’s new housing prices amid tighter monetary policy and challenging financial conditions. While the index’s decline weighs on residential investment and growth prospects, the outlook remains mixed with potential for stabilization if inflation eases and policy shifts. Market participants should monitor mortgage rates, fiscal support measures, and external risks closely. The NHPI’s trajectory will be a key barometer of Canada’s economic resilience in 2026.