Canada’s Residential Real Estate Market: A Review of 2025 and Outlook for 2026
January 9, 2026
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
|
By the end of 2025, one thing was clear: Canada’s real estate market did not rebound, it recalibrated. It absorbed pain, deferred supply, and shifted risk forward. The past year marked a structural reset rather than a cyclical upswing which was forecasted at the beginning of 2025. Prices stabilized in some regions, declined in others, and remained disconnected from income growth almost everywhere. Transaction volumes stayed muted; investor confidence weakened further, and affordability constraints continued to dominate decision-making.
|
However, the market absorbed higher interest rates, shifting immigration patterns, and broken development economics without collapsing—but also without regaining momentum.
Looking ahead to 2026, major real estate organizations forecast a measured recovery in sales and largely flat to modestly rising prices. While we echo the forecast in sales recovery, we expect the prices to decline further before more buyers are coaxed off the sidelines.
2025’s housing market was far more restrained than expected despite the rate cutting cycle and changes to mortgage rules. The year 2025 opened under the shadow of high borrowing costs, a legacy of aggressive rate hikes in 2022. The Bank of Canada had pivoted to easing in mid-2024, slicing its policy rate from 5.0% to 3.25% by the end of that year. Those cuts continued into 2025. By late 2025, the overnight rate stood around 2.25%, following four consecutive trims aimed at rejuvenating the economy. Eager to stimulate activity, regulators also introduced buyer-friendly changes. New federal mortgage rules (effective Dec 2024) extended insured mortgage amortizations to 30 years for first-time buyers and raised the insured loan cap from $1M to $1.5M. The banking regulator (OSFI) even eased the stress test for switch-over mortgages to improve refinancing options. These steps provided relief on paper, but their impact was muted – early 2025 buyers remained cautious, seeking further price drops and rate relief before jumping in.
Approximately 473,000 properties changed hands in 2025 – a 1.1% dip from the prior year[1]. The muted sales activity essentially put a cap on prices, keeping average prices hovering in the high-$600,000s. The national average home price ended 2025 around $676,700, down about 1.4% from 2024[2].
Looking ahead to 2026, major real estate organizations forecast a measured recovery in sales and largely flat to modestly rising prices. While we echo the forecast in sales recovery, we expect the prices to decline further before more buyers are coaxed off the sidelines.
2025’s housing market was far more restrained than expected despite the rate cutting cycle and changes to mortgage rules. The year 2025 opened under the shadow of high borrowing costs, a legacy of aggressive rate hikes in 2022. The Bank of Canada had pivoted to easing in mid-2024, slicing its policy rate from 5.0% to 3.25% by the end of that year. Those cuts continued into 2025. By late 2025, the overnight rate stood around 2.25%, following four consecutive trims aimed at rejuvenating the economy. Eager to stimulate activity, regulators also introduced buyer-friendly changes. New federal mortgage rules (effective Dec 2024) extended insured mortgage amortizations to 30 years for first-time buyers and raised the insured loan cap from $1M to $1.5M. The banking regulator (OSFI) even eased the stress test for switch-over mortgages to improve refinancing options. These steps provided relief on paper, but their impact was muted – early 2025 buyers remained cautious, seeking further price drops and rate relief before jumping in.
Approximately 473,000 properties changed hands in 2025 – a 1.1% dip from the prior year[1]. The muted sales activity essentially put a cap on prices, keeping average prices hovering in the high-$600,000s. The national average home price ended 2025 around $676,700, down about 1.4% from 2024[2].
Figure 1.0
Source: CREA
A Year of Two Halves: 2025’s mild figures mask the dynamic within the year. In the first quarter, Canada’s housing market hit a soft patch as economic uncertainty and trade tensions weighed on confidence. The inauguration of a new U.S. administration brought tariff risks that “returned many home buyers back to the sidelines” – a trend most pronounced in expensive provinces like Ontario and British Columbia, which saw activity sputter and prices come under renewed pressure. By mid-winter, national sales were running well below expectations. The condominium sector was notably sluggish: in Vancouver, new condo pre-sales virtually seized up, with year-to-date sales by spring 2025 down ~60% from the already weak 2024 level[3]. Projects that would have launched in a hotter market were shelved or redesigned, as developers grappled with high construction costs and wary investors.
From April onward, however, the tides slowly turned. With each passing month of rate relief and a clearer picture of the economy’s direction, more buyers tiptoed back in. Indeed, by Q4 2025, the sales-to-new-listings ratio nationally was near a balanced-market level of ~56%, up from under 50% in the first half of 2025.
From April onward, however, the tides slowly turned. With each passing month of rate relief and a clearer picture of the economy’s direction, more buyers tiptoed back in. Indeed, by Q4 2025, the sales-to-new-listings ratio nationally was near a balanced-market level of ~56%, up from under 50% in the first half of 2025.
Figure 2.0
Source: CREA
Regional Highlights – East vs. West: Canada’s vast geography yielded very different housing stories in 2025. Broadly, more affordable regions outperformed the pricier ones. Quebec City led the nation with the highest price increases. While Calgary’s price growth cooled from its torrid 2024 pace, it remained in positive territory. Atlantic Canada continued to benefit from steady in-migration and tight supply. Many East Coast markets logged price increases in the 3–5% range in 2025.
On the other hand, the highest-cost markets struggled. Greater Vancouver and the Greater Toronto Area (GTA) each saw price declines. These regions were buffeted by multiple headwinds: stretched affordability (after years of price run-up) and higher carrying costs for investors.
On the other hand, the highest-cost markets struggled. Greater Vancouver and the Greater Toronto Area (GTA) each saw price declines. These regions were buffeted by multiple headwinds: stretched affordability (after years of price run-up) and higher carrying costs for investors.
|
Figure 3.0
|
Figure 4.0
|
Source: CREA
Condo Market Woes: A special mention is due for the condo segment, especially in big cities. After years of leading the market, condos underperformed in 2025. The rapid rise in carrying costs hit investor-owned condos hardest; many landlords facing higher mortgage payments opted to sell or hold off further purchases. In Vancouver, new condo projects struggled to achieve presales, forcing developers to pause or cancel some towers[4]. Toronto’s condo board saw a surge in listings, and resale condo prices were sharply lower compared to previous year. The one silver lining was for renters: the soft condo resale market kept a lid on condo rental rate increases, even as purpose-built rental vacancies stayed low. But overall, 2025 was the year the condo market witnessed a severe downturn. This “condo correction” is a key factor shaping the outlook for 2026.
Mortgage Renewals Materially Altered Household Behaviour: Many Canadian homeowners who secured mortgages in 2020–2021 at rock-bottom rates faced a harsh reality when renewing in 2025. Interest rates upon renewal were 200–300 basis points higher, translating to hundreds of dollars in added monthly payments[5]. This sudden payment shock squeezed household budgets, forcing families to curb discretionary spending. Variable-rate borrowers saw especially sharp increases as prime rates rose compared to 2021. Thankfully, distress sales remained limited, a sign that prior stress-testing and home equity buffers helped prevent forced selling. This lock-in effect curtailed housing mobility: fewer “move-up” buyers meant dampened demand and capped price growth.
Investor Activity Fell to Multi-Year Lows: Small-scale residential investors pulled back sharply in 2025. Negative cash flow on rental properties, as carrying costs spiked past rents (in Toronto/Vancouver, condo mortgage payments far exceeded rents)[6] reducing incentives for investors. New anti-flipping taxes and vacancy levies discouraged speculative buys. Weak condo price momentum in major cities and softer rental markets led to an erosion in investor confidence and a collapse in pre-construction condo sales in Toronto[7]. Lower speculative demand reduced volatility but exposed how investor-dependent some condo submarkets had become.
Housing Starts Fell Below Demographic Requirements: New home construction slowed dramatically in 2025, especially for ownership housing. Ontario saw housing starts drop ~25% year-over-year to the lowest level in a decade, with British Columbia also down notably[8]. Several constraints converged: high financing costs, soaring prices for land, labor and materials, and hefty development charges made projects unfeasible. Purpose-built rental construction surged to record highs (aided by government incentives), but for-sale housing starts plummeted, hitting multi-decade lows. Developers shifted focus to rentals as condo projects stalled without investor pre-sales.
The pullback in homebuilding widened the supply gap relative to Canada’s housing needs. Fewer ownership homes in the pipeline set the stage for renewed affordability pressures down the road.
2026 Housing Market Outlook: A Cautious Recovery Ahead
As we turn the page to 2026, Canada’s housing market appears to be entering a period of bottoming out, a year of stabilization and mild growth. Compared to the optimistic projections of last year, forecasters see a more balanced, steady market marked by moderate sales growth and relatively flat prices in many regions.
Mortgage Renewals Materially Altered Household Behaviour: Many Canadian homeowners who secured mortgages in 2020–2021 at rock-bottom rates faced a harsh reality when renewing in 2025. Interest rates upon renewal were 200–300 basis points higher, translating to hundreds of dollars in added monthly payments[5]. This sudden payment shock squeezed household budgets, forcing families to curb discretionary spending. Variable-rate borrowers saw especially sharp increases as prime rates rose compared to 2021. Thankfully, distress sales remained limited, a sign that prior stress-testing and home equity buffers helped prevent forced selling. This lock-in effect curtailed housing mobility: fewer “move-up” buyers meant dampened demand and capped price growth.
Investor Activity Fell to Multi-Year Lows: Small-scale residential investors pulled back sharply in 2025. Negative cash flow on rental properties, as carrying costs spiked past rents (in Toronto/Vancouver, condo mortgage payments far exceeded rents)[6] reducing incentives for investors. New anti-flipping taxes and vacancy levies discouraged speculative buys. Weak condo price momentum in major cities and softer rental markets led to an erosion in investor confidence and a collapse in pre-construction condo sales in Toronto[7]. Lower speculative demand reduced volatility but exposed how investor-dependent some condo submarkets had become.
Housing Starts Fell Below Demographic Requirements: New home construction slowed dramatically in 2025, especially for ownership housing. Ontario saw housing starts drop ~25% year-over-year to the lowest level in a decade, with British Columbia also down notably[8]. Several constraints converged: high financing costs, soaring prices for land, labor and materials, and hefty development charges made projects unfeasible. Purpose-built rental construction surged to record highs (aided by government incentives), but for-sale housing starts plummeted, hitting multi-decade lows. Developers shifted focus to rentals as condo projects stalled without investor pre-sales.
The pullback in homebuilding widened the supply gap relative to Canada’s housing needs. Fewer ownership homes in the pipeline set the stage for renewed affordability pressures down the road.
2026 Housing Market Outlook: A Cautious Recovery Ahead
As we turn the page to 2026, Canada’s housing market appears to be entering a period of bottoming out, a year of stabilization and mild growth. Compared to the optimistic projections of last year, forecasters see a more balanced, steady market marked by moderate sales growth and relatively flat prices in many regions.
Table 1.0: Housing Market Forecasts
| Organization | 2025 Home sales forecast | 2025 Home price forecast |
|---|---|---|
| CREA | 7.7% | 3.2% |
| Royal LePage | -- | 1% |
| Re/Max | 3.4% | -3.7% |
| RBC Economics | 6.7% | -0.9% |
| TD Economics | 10.9% | 5.4% |
| Average | 7% | 1% |
Source: canadianmortgagetrends.com, wealthprofessional.ca, economist.td.com, remax.ca, CREA, royallepage.ca
Larger markets to continue to remain under pressure: For Ontario and British Columbia, 2026 will likely bring further price declines in their major metros. These markets are still digesting the rapid run-up of 2020–2022. However, price erosion should be limited mostly to condos and luxury segments. One encouraging sign: inventory levels in Toronto/Vancouver peaked in 2025 and began to ease as some sellers held off, so there is less excess supply than in the depths of the 2023 correction. Overall, Ontario and B.C.’s housing markets are undergoing a fundamental reset of expectations – developers in those provinces are rethinking how and what they can deliver in terms of housing format, pivoting from the high-rise condo model to more mid-rise and ground-oriented projects that align with today’s demand and financing reality[9]. This painful adjustment will continue into 2026, but by year-end, both provinces are likely to see signs of renewed life in housing starts and buyer interest.
Improved Affordability and Buyer Sentiment: Perhaps the best news for 2026 is that housing affordability is set to improve to its best level in several years, thanks to the combination of slightly lower prices in key markets, and cheaper mortgages. In cities like Toronto, the average monthly mortgage payment (for a benchmark home) is projected to fall in 2026 for the first time since 2020, easing the burden on young buyers. Consumer surveys already detect rising optimism: one national poll found 36% of Canadians are optimistic the housing market will improve in 2025–2026, up from barely 20% a year prior[10].
Risks and Wild Cards: While the base-case outlook for 2026 is sanguine, there are notable risks. Global economic volatility – if a recession or financial crisis emerges – could hit consumer confidence and employment, curbing housing demand. Central banks have indicated they will pause cuts; any talk of future rate hikes in late 2026 or 2027 might prompt some buyers to accelerate purchases into early 2026 (a potential mini-surge) but could also cap price growth. Another risk is housing supply: Canada is still not building new homes fast enough to fully meet long-term demand. Housing starts in 2025 were sluggish – in fact, 2023–2025 likely mark a multi-year low in homebuilding[11]. If 2026 sees a sharp rebound in buyer demand without corresponding new supply, competition could heat up unexpectedly by late 2026. On the flip side, if unemployment were to rise more than forecast, the market’s recovery could be slower. Policymakers will be watched closely – any new housing taxes or mortgage rule tweaks by the federal government could also sway the market.
The Real Estate Institute of Canada (REIC) equips its members to navigate market complexities, ensuring they stay ahead of evolving market trends. As we look to 2026, with its mix of policy recalibration and shifting demand dynamics, REIC fosters collaboration between stakeholders to tackle challenges like affordability, supply constraints, and immigration policy shifts. By championing ethical practices, innovative solutions, and professional education, REIC empowers members to thrive in an uncertain and transformative market landscape.
Improved Affordability and Buyer Sentiment: Perhaps the best news for 2026 is that housing affordability is set to improve to its best level in several years, thanks to the combination of slightly lower prices in key markets, and cheaper mortgages. In cities like Toronto, the average monthly mortgage payment (for a benchmark home) is projected to fall in 2026 for the first time since 2020, easing the burden on young buyers. Consumer surveys already detect rising optimism: one national poll found 36% of Canadians are optimistic the housing market will improve in 2025–2026, up from barely 20% a year prior[10].
Risks and Wild Cards: While the base-case outlook for 2026 is sanguine, there are notable risks. Global economic volatility – if a recession or financial crisis emerges – could hit consumer confidence and employment, curbing housing demand. Central banks have indicated they will pause cuts; any talk of future rate hikes in late 2026 or 2027 might prompt some buyers to accelerate purchases into early 2026 (a potential mini-surge) but could also cap price growth. Another risk is housing supply: Canada is still not building new homes fast enough to fully meet long-term demand. Housing starts in 2025 were sluggish – in fact, 2023–2025 likely mark a multi-year low in homebuilding[11]. If 2026 sees a sharp rebound in buyer demand without corresponding new supply, competition could heat up unexpectedly by late 2026. On the flip side, if unemployment were to rise more than forecast, the market’s recovery could be slower. Policymakers will be watched closely – any new housing taxes or mortgage rule tweaks by the federal government could also sway the market.
The Real Estate Institute of Canada (REIC) equips its members to navigate market complexities, ensuring they stay ahead of evolving market trends. As we look to 2026, with its mix of policy recalibration and shifting demand dynamics, REIC fosters collaboration between stakeholders to tackle challenges like affordability, supply constraints, and immigration policy shifts. By championing ethical practices, innovative solutions, and professional education, REIC empowers members to thrive in an uncertain and transformative market landscape.
[1] crea.ca
[2] crea.ca
[3] altusgroup.com
[4] altusgroup.com
[5] canadianmortgagetrends.com
[6] reic.ca
[7] rbc.com
[8] rbc.com
[9] altusgroup.com
[10] mattgul.com
[11] Statcan
[2] crea.ca
[3] altusgroup.com
[4] altusgroup.com
[5] canadianmortgagetrends.com
[6] reic.ca
[7] rbc.com
[8] rbc.com
[9] altusgroup.com
[10] mattgul.com
[11] Statcan
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected].