Home prices could reach peak levels by next year, set new highs in 2026: CMHC report

Canada's housing market is poised for a remarkable trajectory, according to the latest insights from the Canada Mortgage and Housing Corp. (CMHC). The agency's forecast paints a picture of soaring home prices, potentially reaching levels akin to those witnessed in the early months of 2022 by next year, with even loftier peaks anticipated by 2026.

Despite a surge in rental housing supply anticipated in 2023, CMHC's projections suggest that demand will outstrip this increase in availability, driving up rents and reducing vacancy rates in the years ahead. CMHC Chief Economist Bob Dugan highlighted the challenges facing homebuilders, citing unfavorable financing conditions that could hinder the initiation of new rental projects throughout 2024.

However, glimmers of hope emerge on the horizon. By 2025-2026, CMHC anticipates a more conducive environment for housing projects, buoyed by lower interest rates, sustained government support, and policies promoting densification in urban hubs.

Affordability remains a pressing concern in the homeownership market over the next three years. Although declining mortgage rates and robust population growth reminiscent of the 1950s are expected to drive a resurgence in home sales and prices, CMHC warns that affordability may remain elusive for many Canadians.

The housing market witnessed a significant downturn from its peak in early 2021 to the close of 2023, marked by a one-third drop in home sales and a nearly 15% decline in prices. Despite this downturn, CMHC notes a burgeoning pool of potential homebuyers fueled by population growth, increased savings, and rising incomes.

As mortgage rates decline and economic uncertainty wanes in the latter half of 2024, CMHC expects a resurgence in buyer activity. This resurgence will likely be characterized by a shift in demand towards lower-priced homes and markets across Canada.

Looking ahead, CMHC predicts that sales activity from 2025 to 2026 will surpass the previous decade's average, albeit remaining below the record levels witnessed in 2020-2021 due to the persistent affordability challenges.

The report also sheds light on the trajectory of housing starts in Canada. While a decline is anticipated this year, followed by a recovery in 2025 and 2026, CMHC attributes this fluctuation to the lagged impact of higher interest rates on new construction.

Regionally, Ontario and British Columbia are expected to drive the national decline in housing starts this year, with challenges such as financing costs potentially impeding efforts to boost apartment construction. Conversely, the Prairie provinces are forecasted to perform well, fueled by affordable housing prices and a robust economic outlook.

In Quebec, while housing starts are expected to grow, they are projected to remain below post-pandemic levels following a sharp decline in new construction last year. Similarly, the Atlantic region may experience less pressure on new home construction compared to recent years, with starts realigning more closely with population growth.