Report expects Canadian home prices to hit record highs in 2026
Despite approval for new builds, rental construction has been slowed by labour challenges, says economist
The Canada Mortgage and Housing Corp. is forecasting home purchase prices could match peak levels seen in early 2022 by next year and reach new highs by 2026.
The agency's latest housing market outlook, released Thursday morning, said affordability in the home ownership market will be a concern for the next three years as declining mortgage rates and the country's strongest population growth since the 1950s will likely spur a rebound in home sales and prices.
Home sales dropped by around one-third from their peak in early 2021 to the end of 2023, while prices fell by nearly 15 per cent over that time, CMHC said.
"During this time, the pool of potential homebuyers grew through robust population growth, increased savings and higher incomes," the report said.
WATCH | CMHC economist says rental markets likely to remain tight across Canada for next year:
"As mortgage rates and economic uncertainty decrease in the second half of 2024, we expect buyers to start returning to the market."
The report said the resurgence would also be driven by a shift in demand toward lower-priced homes and markets across Canada.
The agency predicts sales activity from 2025 to 2026 will slightly surpass the past 10-year average but remain below the record levels recorded from 2020 to 2021, due to how expensive housing remains.
CMHC also says housing starts in Canada are expected to decline this year before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction.
A report last week from the agency showed construction began on 137,915 new units last year across Canada's six largest cities, a level that was roughly in line with those of the past three years due to a surge of new apartments.
The CMHC says despite an increase in rental housing coming on the market in 2023, supply is not forecast to keep up with demand, leading to higher rents and lower vacancy rates in the coming years.
"Unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024," CMHC chief economist Bob Dugan said in a statement.
"We anticipate by 2025-2026 lower interest rates, continued government support, and policies encouraging greater density in urban centres should make more projects viable."
CMHC economist Michael Mak says despite many rental homes receiving approval for construction, several factors, including labour challenges in the construction industry, are slowing down construction.
"We actually do see … a record number of under construction inventory. A lot of this has been started in the past few years," he says, adding these projects are expected to finish in the next one to three years.
"We're going to see a lot of these rental apartments … being put on market. So that is the silver lining that we were going to see right now."
On a regional basis, the CMHC forecasts Ontario and B.C. will drive the decline in national housing starts this year, warning developers may struggle to boost even apartment construction amid challenges such as financing costs.
It expects the Prairie provinces to perform well, citing affordable home prices and a stronger economic outlook that will likely attract homebuyers and job seekers, leading to increased construction.
In Quebec, housing starts are expected to grow but remain below post-pandemic levels after a sharp decline in new home construction last year.
It said the Atlantic region will likely see less pressure on new home construction than it has since 2022 from unusually strong migration, as starts in certain eastern provinces "will remain historically robust but will realign more closely with weaker population growth."
B.C. Housing Minister Ravi Kahlon said he's confident the province will "out surpass" CMHC's housing start projections for the country and notes the report doesn't take into account changes being enacted by governments.
"It's a projection and it's based on rising interest rates … [that] put a lot of pressure on housing projects throughout Canada," he said.
"I do believe B.C. will continue to lead the country in housing starts. We led per capita the entire country last year and we're going to continue leading the country in the coming years."
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With files from The Early Edition