CMHC 2026 Housing Outlook: Recession Risk, Condo Construction Collapse, and What It Means for Your City

Canada’s national housing agency released its most sobering housing forecast in years on Tuesday, warning that the market faces a prolonged period of subdued demand driven by trade war uncertainty, elevated construction costs, and a softening job market. The Canada Mortgage and Housing Corporation (CMHC) also flagged the risk of a mild recession in 2026 that could further depress housing activity.

The Big Picture: A Market in Trough

CMHC’s 2026 Housing Market Outlook paints a picture of a housing sector that has moved from crisis to stagnation. After the dramatic boom years of 2021 through 2023, when record-low interest rates and surging population growth fueled unprecedented price increases and construction activity, the market has now entered what the agency describes as a multi-year slowdown.

National home sales are projected to remain below historical averages throughout 2026, with prices expected to register only modest gains after declining in 2025. The average resale home price is forecast at CA$698,000 this year, rising to approximately CA$727,000 by 2028. While these figures represent an improvement over the 2025 decline, they fall far short of the peak MLS Home Price Index of CA$841,300 recorded in March 2022.

The economic backdrop is equally challenging. CMHC forecasts real GDP growth of just 0.7 per cent in 2026, one of the weakest non-recession years in recent decades. Employment growth is expected to slow sharply from 1.5 per cent in 2025 to just 0.3 per cent this year, limiting the pool of households able to enter the housing market.

The Condo Construction Collapse

The most dramatic element of CMHC’s forecast concerns condominium development, which is expected to undergo a steep and prolonged decline through 2028. National housing starts are projected to fall from 259,000 units in 2025 to 247,000 in 2026, then drop further to 223,000 in 2027 and just 216,000 by 2028.

The condo market is being hit hardest. In Toronto, apartment starts (a proxy for condominium construction) are forecast to plummet from more than 37,000 units in 2023 to roughly 16,000 to 19,000 units in 2026—a decline of nearly 50 per cent. Vancouver is seeing a similar pattern, with apartment starts falling from approximately 27,600 units in 2023 to between 17,000 and 21,000 in 2026.

The reasons are straightforward. Higher construction and financing costs have eroded project viability for developers, while weaker buyer demand means there is already a significant oversupply of unsold condos in the pipeline. CMHC notes that developers are shifting their focus from starting new condo projects to completing existing ones, with a particular pivot toward purpose-built rental housing where demand remains stronger.

Rental Market Relief

The slowdown in condo construction and the resulting increase in rental supply should provide some relief to renters. CMHC expects Toronto’s rental vacancy rate to rise from 1.4 per cent in 2023 to approximately 3.5 per cent in 2026, which would ease rent growth significantly. Higher vacancy rates and slower rent increases are expected nationwide, giving renters more time and flexibility to save for a down payment.

This is a notable shift from the past two years, when record-low vacancy rates and double-digit rent increases made housing affordability even more challenging for renters trying to save for homeownership.

The Recession Scenario

CMHC presented an alternative scenario in which the economy could slip into a mild recession if business sentiment worsens and government infrastructure projects are delayed. In this scenario, national home sales would fall to approximately 480,000 and the average price could drop to around CA$693,000. The economy would not return to baseline levels until after 2028.

The downside risks to CMHC’s baseline outlook are assessed as more likely than upside outcomes, according to the agency’s deputy chief economist Kevin Hughes. “We expect Canada’s economy to grow slowly in 2026, as many households and businesses remain cautious because of geopolitical and trade uncertainty,” Hughes said. “This caution is leading many households to delay buying homes and making builders more hesitant to start new projects.”

Regional Divergence

Housing market performance is expected to vary significantly across regions. Ontario and British Columbia—where prices are highest and affordability constraints are most acute—are likely to experience weaker construction and sales compared to their 10-year averages. The Prairies and Quebec are expected to perform above average, supported by more affordable housing markets and stronger population growth from interprovincial migration.

The Long-Term Supply Risk

While the current slowdown in construction is a response to weak demand, CMHC warns that a prolonged period of reduced condo starts could become a supply problem if demand rebounds faster than construction activity recovers later in the decade. This creates a fragile balance: too little building now risks constraining supply when the market eventually turns.

The federal government’s ambitious infrastructure and housing investment programs, announced by Prime Minister Mark Carney, are expected to eventually strengthen the economy and support housing demand. However, CMHC notes that large-scale projects take years to ramp up, so the benefits will be gradual rather than immediate.

What This Means for Buyers and Investors

For prospective homebuyers, the current environment offers more time to shop and negotiate, with higher inventory levels and less competition from other buyers. However, affordability remains a significant challenge in Toronto and Vancouver, where price-to-income ratios are still elevated.

For investors, the collapse in condo construction presents a complex picture. The oversupply of new condos in Toronto and Vancouver is likely to keep prices under pressure for the foreseeable future, while the shift toward rental construction could create opportunities in the purpose-built rental market as vacancy rates normalize and rent growth moderates.