Canada's Housing Market: From National Boom to Regional Repricing

The narrative of Canada's housing market is changing. The era of a national, immigration-fueled boom is giving way to a more regionally uneven landscape, driven by a fundamental demographic pivot. The core of this shift is a sharp normalization of population growth, concentrated in a way that is repricing the urban experience.

The numbers tell the story of a stalled engine. In the third quarter of 2025, Canada's population decreased by 76,068 people (-0.2%), marking the first quarterly decline in decades. This follows a quarterly drop of 0.4% annualized, the sharpest such decline on record. The policy driver is clear: the 2025 Immigration Levels Plan has actively reduced non-permanent resident inflows, with net outflows accelerating to 176,000 in that same quarter. This deliberate cooling of population pressure is now being felt on the ground, particularly in the country's largest cities.

The slowdown is not uniform. While smaller areas saw growth ease to 0.8% in 2025 from 1.4%, CMA growth cooled to 1.0% from a robust 3.6% the prior year. This urban-heavy demand shock is the key mechanism. It has stalled urbanization for the first time in decades, as people are increasingly steering away from expensive hubs. The trend is a classic affordability arbitrage, where household formation and new arrivals are finding more relative appeal outside the major metros.

The consequence is a market in structural transition. For years, population growth and home prices moved in tandem. Now, that link is breaking down city by city. The cooling in Census Metropolitan Areas points to a future where housing demand is repriced based on local affordability and policy impacts, not national totals. The winners in this new cycle are likely to be the smaller, more affordable markets that are gaining relative appeal, while the pricing power of major urban centers faces a prolonged headwind.

Market Impact: Cooling Demand and Diverging Prices

The demographic stall is now a tangible market reality, translating into a clear softening of demand and a sharp divergence in price pressures across regions. The national market closed 2025 with subdued activity, as home resales remained stalled in December in most areas. This lackluster finish followed a year where promising recoveries in key urban hubs were dashed by a mix of trade war uncertainty and persistent affordability challenges. The result is a market where buyer caution has taken hold, with transactions in the Greater Toronto Area still running some 25% below pre-pandemic levels.

This cooling demand is meeting a significant increase in supply, which has fundamentally altered the buyer-seller dynamic. Increased inventory-especially in southern Ontario and British Columbia-was a standout trend in 2025, giving buyers greater choice and bargaining power. In the most oversupplied markets, this has directly contributed to price declines.

The national aggregate home price decreased 1.5% year over year in the fourth quarter, with the Greater Toronto and Vancouver markets recording declines of 5.7% and 4.1%, respectively. The Toronto composite MLS Home Price Index fell 0.7% from November and 6.3% from a year ago, a clear signal of sustained downward pressure.

Yet this is a story of two Canadas. While major urban centers grapple with oversupply, smaller, more affordable markets are demonstrating notable price resilience. Prices in parts of the Prairies, Quebec and Atlantic Canada maintained solid gains in 2025, driven by better affordability. This regional divergence is stark: Quebec City recorded the highest year-over-year aggregate price increase (13.2%) among Canada's major regions for the seventh consecutive quarter. The data confirms the repricing is underway, with value shifting away from expensive, high-density hubs toward more balanced local economies.

A key structural factor easing future pressure is the record pipeline of rental units under construction. As highlighted by the Canada Mortgage and Housing Corporation, a high volume of rental apartment units are under construction, which will gradually improve supply in the coming years. This will help to ease the tight rental market, reducing a major source of demand for urban housing and providing a longer-term headwind to price inflation in the most expensive cities. The setup for 2026 is one of continued buyer advantage in major metros, with a spring rebound in activity expected but not a surge, as the market navigates this new era of diverging regional fortunes.

Financial and Sector Implications: Winners and Losers

The regional repricing of Canada's housing market is now a direct P&L and balance sheet reality for key participants. The shift is a classic case of demand compression in concentrated urban hubs, with clear winners emerging in more affordable markets. For mortgage lenders and homebuilders with heavy exposure to Toronto and Vancouver, the impact is a double hit to margins and sales volumes. The National Bank of Canada's analysis shows the demand shock is concentrated in major hubs, with CMA growth cooling to just 1.0% in 2025. This urban-heavy slowdown directly translates to fewer transactions and downward pricing pressure, compressing the revenue streams for firms whose business models are tied to high-volume, high-value urban activity.

The adaptation is already visible in the brokerage sector. While overall sales volumes in Toronto and Vancouver softened, some firms are seeing increased activity in Ottawa, Montreal, and Halifax. Engel & Völkers data reveals a stark divergence: Ottawa, Montréal and Halifax recorded year-over-year increases in luxury sales activity in 2025, even as Toronto and Vancouver saw declines. This suggests a strategic shift in transaction volume away from the largest cities. Brokerages with strong local insight and global reach are outperforming their markets, as buyers become more selective and rely on expertise to navigate value-sensitive segments. The bottom line is a sector in transition, where growth is becoming more dependent on regional specialization and niche market knowledge.

The near-term horizon for this adjustment is defined by the National Bank's expectation that the repricing cycle in major cities will last up to two years. This provides a clear, if challenging, timeframe for sector players to recalibrate. For lenders, it means managing a portfolio under persistent pressure in key markets while seeking opportunities in more resilient regions. For builders, it signals a prolonged period of caution in expensive urban centers, favoring projects in smaller, more affordable markets where demand fundamentals remain stronger. The winners will be those who can pivot their capital and operational focus to align with the new, city-by-city reality of housing demand.

Catalysts and Risks: The Path Forward

The path to a new equilibrium hinges on two primary forces: the deliberate normalization of population growth and the market's ability to absorb a prolonged period of softness. The catalyst is clear. The federal government's 2025 Immigration Levels Plan has successfully reduced non-permanent resident inflows, with net outflows accelerating to 176,000 in the third quarter of 2025. This policy is now the central engine for cooling demand in the most overheated urban centers. As Ottawa targets a 5% share for temporary residents from a peak of 7.6%, further net outflows are expected through 2027. The direct impact is visible in the first annual population declines on record for Ontario and British Columbia. This sustained reduction in the core driver of urban demand is the primary force that will eventually stabilize prices, but its pace will dictate the timeline for recovery.

The key risk is that the current softness persists longer than the market expects, triggering a broader repricing cycle. The national aggregate home price decreased 1.5% year over year in the fourth quarter of 2025, and the Greater Toronto and Vancouver markets saw declines of 5.7% and 4.1%, respectively. If buyer caution deepens or economic uncertainty intensifies, this could extend beyond the initial urban hubs. The record pipeline of rental units under construction provides a long-term supply buffer, but in the near term, a prolonged period of weak sales could force deeper discounts to clear inventory, particularly in the most expensive markets. The risk is not just a stall, but a potential acceleration of the repricing that has already begun.

Looking ahead, the spring market offers a modest but critical test. Forecasts suggest a rebound, but not a surge. The Canadian Real Estate Association expects national home sales to grow 5.1% in 2026, a downgrade from earlier projections. This recovery is expected to be driven largely by British Columbia and Ontario, the very regions facing the steepest population and price declines. The setup is one of pent-up demand meeting a more cautious buyer. Lower borrowing costs and improved affordability have restored some attainability, but the legacy of high rates and a shift in migration patterns mean the market is unlikely to return to its previous, nationalized boom. The bottom line is that the market's forward trajectory will be defined by the interplay between a deliberate policy-driven cooling and the market's resilience in the face of persistent softness.