Canada’s housing market is facing an unprecedented severe test. In a Feb. 18 report, economists Benjamin Tal and Katherine Judge of Canadian Imperial Bank of Commerce (CIBC) pointed out that although official data show housing starts rose 5 percent year-over-year in 2025, actual construction activity is far weaker than it appears, with clear signs of market softness. The average home price in Toronto has fallen below the CAD 1 million mark, sales remain sluggish, inventory is high, and buyer-market conditions are intensifying. This month, a home in Ontario sold at a loss of as much as CAD 760,000. Experts generally believe prices will decline further, warning investors to guard against liquidity risks, as the broader economy may continue to be dragged down.
Tal and Judge noted that official housing start data from the Canada Mortgage and Housing Corporation (CMHC) significantly lag reality, especially for large multi-family projects, which are often included in statistics one to two years after foundation work is completed. “Current high-rise start figures reflect activity from late 2024, not present conditions.” Based on estimates using Urbanation and Zonda data, CIBC found that actual housing starts in the Greater Toronto Area (GTA) are about 50% lower than official figures, and about 30 percent lower in Greater Vancouver. Early signs of softness are also emerging nationwide, suggesting the gap between real activity and official data could widen.
CMHC’s latest 2026 Housing Market Outlook reinforced these concerns. Housing starts in Ontario are projected to fall to a near 20-year low, mainly due to extremely weak condominium pre-sales. GTA new home construction will remain subdued, particularly condos. Although rental construction may partially offset the decline, weak demand, economic uncertainty, and high building costs have created a “perfect storm.” The report forecasts continued price pressure in 2026, especially in high-priced cities like Toronto, where high inventory and weak sales will likely push prices modestly lower until signs of recovery appear in 2027.
This lag effect exposes the fragility of Canada’s housing market. In 2025, new condo sales in Toronto and Hamilton totaled only 1,599 units—the lowest since 1991—down 91 percent from the past decade’s average and just 5 percent of 2021 levels. Toronto real estate agent Xiao Lang said in a YouTube program that fourth-quarter sales were just over 200 units and could be worse in the first quarter of 2026, signaling the collapse of the pre-construction “greater fool” cycle. He described pre-sale condos as financial products rather than traditional real estate, where buyers are essentially betting on future appreciation.
Developers, he argued, shift structural risks—rising interest rates, market corrections, recessions—onto buyers. “Pre-sale pricing is often dynamically adjusted based on inquiry volume. A 10 percent increase can generate tens of millions in additional profit.”
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Toronto prices fall below CAD 1 million as buyer’s market returns
Recent reports from major Canadian media confirm ongoing downward pressure. Data from the Toronto Regional Real Estate Board (TRREB) show that in January 2026, the average GTA home price fell to CAD 973,000, down 6.5 percent year-over-year—marking the first time since 2021 that prices dropped below CAD 1 million. Sales plunged 19.3 percent year-over-year to 3,082 units, while the benchmark price declined 8.0 percent to CAD 936,100.
CTV News and The Globe and Mail reported that national home sales dropped 16.2 percent in January. Severe winter storms hit the Toronto region particularly hard, and rising inventory has strengthened buyers’ negotiating power. Royal LePage forecasts GTA prices will fall 4.5 percent in 2026, with the condo market remaining especially weak due to oversupply and fading investor demand.
The Globe and Mail noted that the condo sector is particularly bleak: some studios and one-bedroom units have fallen below CAD 400,000 for the first time in years. However, risks remain, including high maintenance fees and weak liquidity. TRREB’s 2026 outlook suggests GTA home prices may stabilize between CAD 1 million and CAD 1.03 million for the year, with further mild declines possible in the first half before potential stabilization later if consumer confidence improves.
CIBC economists even described Canada’s housing market as having “completely collapsed,” arguing that falling prices are dragging down construction activity, consumer spending, and overall growth—especially in Ontario and British Columbia.
Declining home prices amplify the negative “wealth effect.” The CIBC report cited Bank of Canada research suggesting that for every CAD 1 increase in housing prices, consumption may rise by about 5.7 percent; conversely, declines have an even stronger negative impact. Over the past decade, soaring home prices boosted household confidence and borrowing against home equity. Now, falling prices and rising loan-to-value ratios limit access to equity, leading to weaker consumer spending.
Tal and Judge warned: “Reduced home construction and falling prices have clear negative economic impacts. In the high-rise sector, the economics have completely broken down—prices are too high to afford, yet not high enough to build profitably.”
Land prices plunge; developers diverge
A sharp decline in land prices signals a deeper correction. In the GTA, land values reportedly fell from about USD 150 per square foot (roughly CAD 220) in 2021 to as low as USD 50 (maximum USD 90) in 2025—a drop of more than 60 percent. Rising financing costs and weak pre-sales have cut land transaction volumes by more than half.
Xiao Lang noted that falling land costs could allow new developers to offer cheaper projects, intensifying price competition. Older developers burdened with past projects are canceling more developments—double the number in 2024—with some even declaring bankruptcy. By contrast, new entrants without legacy costs may launch projects at lower prices.
Large institutions such as Brookfield Corporation are reportedly staying on the sidelines, shifting focus toward affordable rental housing and long-term holdings. Analysts suggest such capital giants typically wait for smaller developers to fail before entering at distressed prices.
An investor exit wave is further draining liquidity. In Ontario, 84 percent of investors are reportedly leaving the market; nationally, the figure is 75 percent. Pre-construction condos once thrived on four financial attributes—low down payments, delayed closing, leverage, and resale potential. But with high interest rates and tightening liquidity, failure in any of these elements can trigger crisis. Many buyers are defaulting, with some reportedly forfeiting deposits rather than closing.
When will the market bottom?
Analysts suggest monitoring three variables: liquidity conditions, entry signals from major institutional investors, and supply-side shifts (land prices and development activity). CIBC stressed that without lowering construction costs, recovery will remain difficult, and economic conditions may continue deteriorating.
Over the next two to three years, further price declines remain possible. New condo pre-sale prices may fall to CAD 800–1,000 per square foot between 2026 and 2028. Some predict a more sustainable rebound may not occur until after 2030, when younger cohorts become primary homebuyers.
For investors, caution is advised. Monitoring institutional capital movements and land price stabilization may provide early signals of a bottom. Policymakers are urged to closely track actual housing starts and construction costs to assess economic risks.
Canada’s housing winter reflects deeper structural challenges: high interest rates, demographic shifts, and collapsing investor confidence. While modest recovery signs could emerge later in 2026, oversupply and high inventory continue to dominate Toronto’s market. The report concludes that buyers and investors should avoid FOMO-driven decisions and instead rely on quantitative analysis. Affordable rental housing and long-term holding strategies may become new focal points, but a broad residential market recovery remains distant.
By Li Ting
