‘It’s off to a terrible start’: Why you can expect Canadian real estate prices to keep declining in 2026

You can listen to this episode on Amazon, Apple, and Spotify. Episode Description Ontario’s residential real estate market is experiencing a substantial correction following a period of extraordinary price escalation that peaked in late 2021 and early 2022. The current downturn represents a significant shift in the province’s housing landscape, with implications extending across multiple municipalities and affecting various segments of the market. The real estate frenzy that characterized the pandemic era saw unprecedented bidding wars and prices that far exceeded asking values. Properties in major urban centers experienced dramatic appreciation, creating conditions that many analysts now recognize as unsustainable. The subsequent correction has been particularly severe in areas that experienced the most dramatic price increases during that period. The situation has been compounded by significant changes in federal immigration policy, particularly regarding temporary foreign workers and international students. These policy shifts have had pronounced effects on certain housing markets that had become dependent on rental income from international students. Properties that were configured to accommodate multiple student tenants have seen their economic models fundamentally disrupted, leading to financial distress for some property owners. The concept of being underwater on mortgages has become increasingly relevant across Ontario’s housing market. When property values decline below outstanding mortgage amounts, homeowners find themselves in challenging positions, unable to sell or refinance without incurring substantial losses. This phenomenon is spreading through neighborhoods as recent sales establish new comparable values that affect surrounding properties. Historical precedents suggest that real estate corrections can persist for extended periods. The Ontario market experienced a similar downturn in the early 1990s, and when adjusted for inflation, property values took nearly two decades to recover to previous peaks. Current market indicators suggest the correction may continue in the near term, with inventory levels rising at unprecedented rates. The condominium market faces its own set of challenges. New developments feature increasingly compact units, reflecting both market pressures and changing development economics. Developers are experiencing elevated rates of purchase agreement failures, where buyers forfeit deposits rather than complete transactions. This creates additional inventory pressure, though the absence of new construction projects may eventually help stabilize the market. From a policy perspective, questions have emerged about the timing and pace of interest rate adjustments by the Bank of Canada. The extended period of near-zero interest rates during the pandemic recovery phase may have contributed to market overheating. Additionally, rapid increases in immigration levels have been identified as creating housing demand that outpaced supply, contributing to price pressures. Despite the challenges facing the market, some observers note potential benefits from the correction. Lower housing prices may improve affordability for younger Canadians seeking to enter the market. The adjustment represents a return to more sustainable market conditions after a period of exceptional volatility. This is an automated summary. Please check against delivery.