Canada’s housing market is projected to remain “subdued” throughout 2026, largely due to economic instability linked to ongoing trade tensions and tariffs imposed by the United States. The Canada Mortgage and Housing Corporation (CMHC) released its latest housing market outlook on Tuesday, highlighting that buyer demand is likely to fall short of historical norms for the foreseeable future.
Economic Pressures Affecting Buyer Confidence
The CMHC’s report indicates that various economic factors are keeping many potential homebuyers on the sidelines. Elevated price-to-income ratios, escalating carrying costs, and persistent job market uncertainties are contributing to a climate of caution among consumers. The CMHC noted, “Higher vacancy rates and slower rent increases are expected nationwide, giving renters more time and flexibility to save before buying a home.”
The impact of U.S. tariffs, particularly those affecting sectors like aluminium and steel, lumber, and automotive manufacturing, has significantly hampered the Canadian economy. As a result, many Canadians are prioritising financial stability over home purchases amid the current economic climate.
Future Prospects for the Housing Market
Despite the ongoing challenges, the CMHC anticipates a resurgence in market activity beginning in 2027 and continuing into 2028. The report states, “While overall home demand is subdued, national home sales are projected to pick up temporarily in 2026, led by Ontario and British Columbia.” These provinces, which have experienced some of the weakest sales figures in decades, are expected to see a rebound driven by pent-up demand rather than a sustained recovery.
As the economy stabilises, the CMHC predicts that rising incomes and a more secure job market will encourage buyers to re-enter the housing market. “National home sales are then anticipated to rise slightly in 2027 and 2028 as the economy improves,” the report adds.
Government Initiatives Aimed at Economic Recovery
In response to the economic headwinds, Prime Minister Mark Carney has outlined a framework of federal capital spending measures designed to stimulate economic activity. These initiatives aim not only to counter the immediate effects of the trade war and related tariffs but also to bolster Canada’s long-term resilience against potential trade disruptions.
The CMHC commented on these government efforts, stating, “While businesses and households scale back, government spending will remain strong. The federal government has embarked on an ambitious programme, investing heavily in infrastructure, housing, clean energy, defence, and productivity-enhancing projects.” However, they cautioned that the benefits of such large-scale initiatives may take time to materialise.
Construction Trends and Challenges
The report also indicates a decline in housing starts from now until 2028, as developers grapple with soaring construction and labour costs. As demand for housing remains weak, developers are expected to pivot away from building condominiums towards more purpose-built rental units.
In major markets like Toronto and Vancouver, where condo development has dominated recent construction reports, there is an anticipated shift. The CMHC noted, “Developers are focused on completing current condo construction projects rather than starting new ones,” reflecting a cautious approach to future projects.
Navigating Potential Economic Downturns
In an alternative scenario, the CMHC warns of a possible recession if economic conditions worsen. If business sentiment declines and government projects face delays, Canada could experience a mild recession in 2026, characterised by a significant drop in investment. The report states, “In such a scenario, housing prices, sales, and starts could also fall below baseline forecasts.”
To avert this downturn, the CMHC suggests that geopolitical and trade tensions must ease, government initiatives need to accelerate, and population growth must exceed expectations to stimulate market demand. The CMHC concluded, “In such a scenario, housing prices, sales, and starts could also surpass expectations.”
Why it Matters
The outlook for Canada’s housing market is emblematic of broader economic uncertainties that could impact the lives of millions. As potential buyers remain hesitant amidst fluctuating economic indicators, the government’s ability to implement successful policies will be crucial in fostering a more stable and confident housing market. With many Canadians currently prioritising financial security over homeownership, the path to recovery will require not only strategic governmental intervention but also a shift in public sentiment towards the housing market.
