Economic forecast: Slow growth amid uncertainty
Our Canadian economic outlook has changed little since the Winter Housing Market Outlook. Baseline growth in 2026 is still expected to be a modest 0.7%. Consumer spending, government investment and a rebound in exports should support growth. On the other hand, weaker residential construction and strong import growth should weigh on the economy.
Uncertainty remains high throughout the forecast period. Global tensions, especially the U.S.-Iran war, will likely push inflation up temporarily in 2026. Ongoing U.S.-Canada trade uncertainty will likely weigh on business investment and hiring decisions.
Economic conditions will vary across the country. Western Canada is expected to lead growth in 2026, helped by stronger commodity prices resulting from the U.S.-Iran war. Central Canada is more affected by trade risks and is likely to lag. Conditions in Atlantic Canada remain the weakest. After 2027, economic growth should pick up compared with 2026, but it will still be moderate. As the economy strengthens more broadly, differences between regions should narrow, supported by more diversified trade and stronger business investment.
These economic conditions set the backdrop for the housing market outlook in Canada. Uncertainty and subdued economic and income growth continue to limit housing demand in the near term.
Housing forecast: Uneven adjustment to soft housing demand
Housing market activity in 2026 has so far been weaker than expected, particularly in sales and prices. This reflects slower population growth, ongoing economic uncertainty, high mortgage rates and slow income growth. Buyers continue to act cautiously. As a result, improved affordability alone hasn’t been enough to bring many buyers back into the market.
As economic growth and income gains strengthen in 2027 and 2028, buyer confidence should improve, and housing demand should gradually recover from these weak levels. Sales are expected to increase gradually over the forecast period but remain below typical levels seen in the last decade.
Conditions will differ across regions. Market momentum is expected to keep sales high in Prairie and Quebec markets. In contrast, British Columbia and Ontario will likely continue to struggle with historically weak sales levels due to affordability challenges and slower population growth.
Home prices will continue to adjust to weak housing demand and muted sales. Prices are expected to decline through 2026 and then grow only modestly afterward. Overall, very slow population growth and limited income gains should keep price increases moderate across the country.
Prairie markets will likely lead price growth because demand remains strong in that region, while Quebec should see modest gains due to more balanced market conditions. British Columbia and Ontario are likely to see the weakest growth because of slower population growth, affordability challenges and higher supply.
Subdued housing demand will also weigh on new construction. Housing starts are expected to decline further as builders continue to respond to unsold inventories and high construction costs. Historically low levels of construction will be most visible in Ontario and British Columbia, particularly in the condominium market. Housing starts in the Prairies and Quebec will also decline, but from recent peaks. Rental construction is expected to ease gradually from its historic 2025 peak. Maintaining a sustainable level of rental construction remains important to support future housing needs, particularly as demand currently suppressed by affordability constraints should materialize towards the end of the forecast horizon.
National rental markets should continue easing in 2026. New supply is increasing, especially from purpose-built rental projects. This will help lift vacancy rates and slow average rent growth, particularly for asking rents. This easing is more noticeable in larger markets such as Toronto and Vancouver, which are more affected by slower population growth and a larger supply of condominiums in secondary rental markets. In contrast, Prairie markets will likely continue to see modest rent increases, reflecting stronger demand.
Although overall rental conditions are improving, affordability remains a challenge. Rents are still high relative to income, especially when units turn over.
Alternative scenario
Downside risks to the forecast remain. Inflation could remain high if the U.S.-Iran war drives oil prices higher and further disrupts supply chains, or if trade tensions intensify. This would further weaken confidence and slow income growth. In this case, housing demand would remain soft for longer. Home sales, prices and construction would recover more slowly, and rental markets would continue to ease as supply outpaces demand.
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