Navigating the Complexities of Canada’s Housing Market
By Craig Lord
The health of Canada’s housing market is a topic of growing concern as new reports indicate that current conditions may hinder both economic recovery and the crucial injection of housing supply that many experts believe is overdue. CIBC’s deputy chief economist, Benjamin Tal, recently expressed his views on the soft housing market and its implications for builders and the broader economy.
The State of the Housing Market
In a recent report released by CIBC, a stark picture of the Canadian housing market emerges. Despite some positive indicators, the overall environment is cooler than necessary to spur new home construction. Tal emphasized that we are in the early stages of a significant economic correction, particularly as housing represents a substantial portion of Canada’s GDP.
Over the past two decades, rising property prices and escalating real estate investments have inflated the housing sector’s influence on the economy. While the Canada Real Estate Association forecasts a modest 5.1% increase in home sales for the year, this is tempered by a backdrop of trade uncertainties that led to a slowdown in 2025.
The Dichotomy of Prices: Expensive to Buy but Cheap to Build
The pandemic induced an unprecedented surge in housing prices thanks to ultra-low interest rates. In contrast, recent economic upheavals have led to a decline in property values, resulting in a chilling effect on potential buyers and, subsequently, on builders. As Tal noted, “the way to describe the housing market at this point is that houses are still too expensive to buy, not expensive enough to build.” This paradox suggests a market that is fundamentally misaligned, making it increasingly challenging for developers to see a clear path to profitability.
Analyzing Housing Starts Data
Despite a reported 5.6% increase in housing starts for 2025, Tal argues that these figures conceal a more profound weakness in construction activity. The Canada Mortgage and Housing Corporation (CMHC) defines a housing start at the moment when concrete is poured for a building’s foundation. This method of counting, however, can create a significant lag in reporting construction activity, especially for large multi-family projects which often require extensive foundation work.
Tal asserts that much of the current data reflects decisions and activities that took place long ago, rather than the present state of the market. His analysis implies that actual construction underway in key markets such as Greater Toronto and Vancouver may be significantly lower than what is currently reported, with estimates suggesting decreases of up to 50% and 30%, respectively.
Impact on Consumer Perception and Spending
Falling home prices have broader implications beyond the immediate real estate sector. Lower property values can erode Canadians’ perceptions of their wealth, prompting households to adopt more conservative spending habits. Tal highlights that when home prices rise, owners can confidently borrow against their homes’ increased value, providing a boost to consumer spending. Conversely, as prices decline, homeowners may struggle with higher loan-to-value ratios, limiting their ability to tap into home equity for loans or lines of credit.
Potential Opportunities for First-Time Buyers
On a more promising note, the current climate could serve as a boon for first-time homebuyers. The reported drop in property values might create opportunities for entrants into the housing market who might otherwise struggle to afford a home. This influx of new buyers may help to counterbalance some of the broader spending reductions anticipated in the economy.
A Call to Action
While Tal acknowledges that decreasing home prices may provide short-term relief for some buyers, he warns that this is not a sustainable solution for long-term housing affordability. He calls for a rapid reduction in construction costs to rekindle the business case for new home creation in Canada.
Last year, the federal government introduced a GST rebate for certain newly constructed homes, which Tal considers a favorable step. However, he emphasizes the need for municipalities to swiftly address high development charges that inflate the final costs to consumers. “The reality is, quite frankly, we know what to do. There have been many committees, many research reports. It’s time not for research. It is not time for reports anymore. It’s time for action,” he stated emphatically.
Conclusion
The current state of Canada’s housing market presents both challenges and opportunities. With the potential for continued economic corrections and shifting consumer behavior, stakeholders will need to prioritize solutions that foster sustainable growth in the housing sector. Whether through governmental initiatives or market-driven strategies, action is imperative to create a more balanced and accessible landscape in the ever-evolving realm of Canadian real estate.
As Canadians continue to navigate these turbulent waters, it remains clear that the future of the housing market will significantly influence the broader economic landscape for years to come.
