Canada’s Housing Market Edges Toward a Rebound

Canada’s housing market is showing early signs of a turnaround after a weak start to 2026. Toronto sales have accelerated, national activity has improved and the gap between buyer and seller expectations is narrowing. A return to rapid price growth remains unlikely, as elevated mortgage rates, slower population growth and excess condominium supply in Ontario and British Columbia are expected to restrain the market through at least 2027.

Canadian Real Estate Approaches a Turning Point

Financial Post described the current period as a possible short window for buyers who have remained on the sidelines. The assessment followed stronger second-quarter data and an updated Toronto-Dominion Bank forecast pointing to a gradual sales recovery in Canada’s largest provincial markets. The anticipated rebound concerns transaction activity rather than the start of another price boom.

TD Economics expects national sales to move gradually higher during the second half of 2026, supported by pent-up demand and a possible decline in government bond yields. The bank forecasts a 0.3% decline in Canada’s annual average home price this year, followed by modest price acceleration in 2027. Sales are not expected to approach pre-pandemic levels until the second half of next year.

The projected recovery is weaker than previous Canadian housing rebounds. Lower borrowing costs rapidly brought buyers back after the global financial crisis and the pandemic. Prices are now much higher relative to household income, while population and employment growth have slowed.

Sales Are Recovering Faster Than Home Values

National home sales increased by 5.5% from April to May 2026. The actual average transaction price reached C$702,079, up 1.5% from a year earlier and above C$700,000 for the first time in almost two years.

The composite Multiple Listing Service Home Price Index produced a different result. It remained 4.1% below May 2025 after adjusting for differences in the properties sold. A larger share of expensive transactions in British Columbia and Ontario can raise the national average even while the value of a typical home continues to fall.

The distinction is crucial. A rising average price does not establish that most Canadian homes have reached the bottom of the cycle. It may simply show that wealthier buyers are returning earlier than the broader market.

Toronto Recorded a Clear Sales Improvement

Greater Toronto became one of the strongest sources of optimism. The regional real estate board recorded 6,770 sales in June, an increase of 9.4% from a year earlier. New listings fell by 12.9%, while seasonally adjusted sales increased from May.

The composite benchmark price was still 5.4% lower than in June 2025, and the average selling price declined by 3.9%. The market has therefore shifted from rapid deterioration toward a gradual reduction in excess inventory, but sellers have not regained pricing power.

A tighter balance could stabilise prices during the second half of the year. Buyers nevertheless retain substantial negotiating leverage, particularly in the condominium market.

Condominiums Remain Toronto’s Weakest Segment

The downturn has been most severe among small investor-owned condominiums. Before rates increased, buyers frequently purchased units before construction, expecting capital gains, assignment sales or profitable rental income.

Higher financing costs undermined the model. In many cases, rent no longer covers the mortgage, condominium fees, tax and insurance. At the same time, projects sold several years earlier have reached completion, adding units to an already well-supplied resale market.

TD expects condominium values in key Ontario and British Columbia markets to remain under pressure. Higher-priced detached properties may prove more resilient, allowing provincial average prices to stabilise before condominium benchmarks recover.

British Columbia Remains Below Normal Sales Levels

British Columbia recorded 6,790 sales in May, down 2% from the previous year. Activity was 26.4% below the ten-year average for the month, with the weakest conditions concentrated in the Lower Mainland.

The province’s year-to-date average price was down 1.2%. TD expects sales momentum to improve during the second half, partly because expensive properties are outperforming lower-priced housing. This composition effect can improve the provincial average without resolving weakness in mainstream apartments and houses.

The ratio of sales to new listings also remains lower in British Columbia than in most other provinces, preserving buyer leverage and limiting sellers’ ability to increase prices.

Ontario and British Columbia Are Rebounding From Low Bases

The expected improvement in Canada’s two largest housing markets partly reflects the scale of their earlier declines. Year-to-date average prices were down 3.9% in Ontario and 1.2% in British Columbia. Newfoundland and Labrador, Quebec and Saskatchewan continued to record gains.

The three-month sales-to-new-listings ratio stood at 38.5% in Ontario and 41.6% in British Columbia, compared with 60.9% across the rest of Canada. Lower ratios indicate greater choice for buyers and weaker upward pressure on valuations.

Canada therefore does not have a uniform national housing cycle. Toronto and Vancouver are correcting after severe affordability deterioration, while several less expensive provinces continue to experience price growth.

Mortgage Rates Remain Well Above the Policy Rate

The Bank of Canada held its overnight rate at 2.25% in June. Policymakers are balancing economic weakness against the possibility that higher energy prices could produce more persistent inflation, limiting the scope for further easing.

Homebuyers cannot borrow at the central bank’s policy rate. As of July 8, typical posted rates at Canada’s major banks were 5.49% for a one-year conventional mortgage, 6.05% for a three-year term and 6.09% for a five-year fixed term. Qualified borrowers may receive discounts, but long-term financing remains far more expensive than it was during the pandemic.

TD expects the five-year government bond yield to drift from about 3% to 2.9% by the first half of 2027. That may reduce fixed mortgage rates moderately, but it would not restore the affordability conditions that drove the previous boom.

Mortgage Renewals Will Restrict Household Spending

About 60% of outstanding Canadian mortgages were expected to renew during 2025 and 2026. Many borrowers will move from contracts secured during the low-rate period to more expensive financing.

The Bank of Canada estimated that borrowers renewing in 2026 could face an average payment increase of approximately 6% compared with December 2024. Holders of five-year fixed mortgages could experience average increases of about 20%. The central bank does not expect a systemic crisis, but some households will need to reduce other spending.

Higher renewal payments limit the housing recovery because existing owners have less capacity to trade up, while potential investors see that carrying costs remain high even after monetary easing.

Slower Population Growth Weakens Rental Demand

Post-pandemic migration was a major source of housing demand, but that support has diminished. Canada’s non-permanent resident population fell by 171,296 between October 2025 and January 2026, declining from a peak of 3.15 million in late 2024 to 2.68 million.

The effect is particularly important for small apartments near universities and major employment centres. International students and temporary workers formed a large share of the tenant pool supporting investor-owned condominiums.

Slower population growth may reduce rental shortages, but it also lowers expected investment returns and raises vacancy risk.

A Sustainable Recovery Requires Stronger Employment

Canadian employment increased by 88,000 in May, while unemployment declined from 6.9% to 6.6%. The gain offset part of the weakness recorded during the first four months of the year, when full-time employment fell by 156,000.

One strong month does not establish a sustained labour-market recovery. Housing purchases depend heavily on confidence in future income, making continued job improvement particularly important in Ontario and British Columbia. Their unemployment rates stood at 7% and 6.8%, respectively, in May.

Employment uncertainty also restricts sellers’ ability to raise prices. Buyers may obtain a lower price or a better mortgage rate but remain reluctant to take on substantial debt when their income outlook is unclear.

Housing Is Still Weighing on Economic Growth

Investment in residential structures declined by 2% in the first quarter of 2026 following a 2.4% fall in the previous quarter. Ownership transfer costs, which are closely linked to resale transactions and professional services, fell by 9.9%. New housing construction edged down by 0.1%.

Housing weakness contributed to the stagnation of Canada’s economy at the beginning of the year. Fewer sales reduce income for brokers, appraisers, mortgage advisers, lawyers, renovation firms and provincial or municipal governments.

A recovery in transactions would therefore support the economy even if home prices remain broadly unchanged.

Forecasts Disagree on the Direction of 2026 Prices

The Canadian Real Estate Association expects 474,972 homes to change hands in 2026, an increase of 1%. The national average price is forecast to rise by 1.5% to C$688,955. Sales are projected to increase by another 2.1% in 2027.

The difference between CREA’s forecast and TD’s projected 0.3% decline illustrates the uncertainty surrounding the market. Both scenarios describe a largely flat year rather than a rapid recovery, and the result can change with the regional and property-type composition of transactions.

Canada Mortgage and Housing Corporation also expects sales to remain below historical averages, with only modest price gains following the 2025 decline. Trade uncertainty, slow population growth and regional divergence are expected to restrain demand.

As International Investment experts report, Canada’s housing market appears close to a turning point, but a 2026 rebound primarily means the end of falling sales rather than rapid appreciation. Ontario and British Columbia may generate strong percentage gains from a weak first half, while excess condominium supply, expensive mortgages and softer migration continue to weigh on values. Buyers seeking a long-term primary residence are in the strongest position because they can negotiate and wait through a slow recovery. Short-term investors remain exposed to weak liquidity and rental returns, particularly in Toronto and Vancouver condominiums.

FAQ

Is Canada’s housing market recovering?

Early signs emerged during spring and early summer 2026. Sales improved nationally and in Greater Toronto, but benchmark prices remain below year-earlier levels. The market is stabilising rather than entering another boom.

Will Canadian home prices rise in 2026?

Forecasts differ. CREA expects the national average to increase by 1.5%, while TD projects a 0.3% decline. Both imply an essentially flat market with major provincial differences.

Which provinces could recover fastest?

Ontario and British Columbia have the greatest potential for a sales rebound because activity fell more sharply there during the first half. Prices may recover more slowly than transaction volumes.

Could Toronto prices fall further?

Pressure remains strongest in condominiums. Falling new listings and higher sales are improving the market balance, which may slow price declines later in 2026.

Why have lower policy rates not restored demand?

Fixed mortgage rates remain much higher than the policy rate and are influenced by bond yields. High purchase prices, large deposit requirements and employment uncertainty also restrict demand.

Is an investment condominium a safe purchase?

Risk remains elevated in markets with large new-build inventories and dependence on temporary renters. Investors need to calculate net income after financing, condominium fees, taxes, insurance, maintenance and potential vacancy.

When could sales return to pre-pandemic levels?

TD expects national transactions to approach their pre-pandemic level during the second half of 2027. Price growth is likely to remain modest.