CMHC forecasts slowdown in housing starts through 2027

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Housing starts across Canada kicked off the year strong, but lower immigration levels and evolving U.S. trade policies are clouding the country’s economic outlook, which has had a cascading effect on the housing market, according to the Canada Mortgage and Housing Corporation (CMHC).

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The total monthly seasonally adjusted annual rate for housing starts across Canada increased three per cent in January, while actual housing starts were up seven per cent year-over-year in areas with a population of at least 10,000, the CMHC said in its 2025 housing market outlook.

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“While these increases show early signs of progress to begin the year, foreign trade risks add significant uncertainty for housing construction going forward,” CMHC deputy chief economist Tania Bourassa-Ochoa said in a release.

While the CMHC forecasts “modest” economic growth in 2025 with the outlook improving into 2026-’27, it’s a mixed bag for the housing market.

“Slower population growth and economic challenges will limit housing activity,” the report said. “On the other hand, some households will see improved buying power, boosting housing activity in the short term.”

Housing starts to slow in 2025, but it’s all about location

The CMHC forecasts that housing starts will slow down starting this year through 2027 — but will remain above the 10-year average — mainly due to a domino effect in the condominium market.

“With low investor interest and more young families looking for family-friendly homes, developers will find it harder to sell enough units to fund new projects,” the report said. “The increase in unsold units will likely reduce new project launches, leading to a decline in new condominium apartment construction.”

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In condo-centric Ontario, particularly in the Greater Toronto Area, Hamilton, Kitchener, Cambridge and Waterloo, higher interest rates have pushed down demand, which has in turn “reduced condominium apartment starts, with fewer land deals, project launches and pre-construction sales in the past two years,” the report said.

Pricing, low demand, lack of presales and lack of land deals are also straining British Columbia‘s condo construction starts, but a stronger resale market could prop up planned projects. The CMHC also expects condo starts to stay “quite weak” in the eastern markets, which includes Ottawa, Gatineau, Montreal, Quebec and Halifax.

Instead, the CMHC expects more affordable options like row houses to lead a “small recovery” in ground-oriented homes, including detached and semi-detached houses.

“Regionally, new construction in Quebec will recover from recent lows. In Alberta, new construction will slow down from high levels,” the report said.

Strong momentum in rental apartment construction is largely driving housing starts across the country and is expected to continue in 2025-’26 after a record year in 2024 due to government incentives for rental construction.

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Federal programs are driving growth in rental starts in the Prairies, while a “historically tight rental market” and government programs in Vancouver and Victoria are spurring new developments. The CMHC says the lack of condo starts in Ontario will be offset by “robust” purpose-built apartment rental starts in 2025 — though that may cool off in 2026 as cautious developers keep an eye on increasing vacancies and lack of high-rise land deals. In the eastern markets, the CMHC expects rentals will account for “most new construction.”

Trade war creating significant economic uncertainty

In its report, the CMHC lays out three scenarios and their impact on housing — low growth, medium growth and high growth — based on the “significant economic uncertainty” posed by reduced immigration targets over the next three years and possible U.S. tariffs. In a worse-case scenario, the U.S. imposes a 25 per cent tariff on all Canadian imports.

“This could have a major impact on Canada’s economy as early as 2025, including: investment uncertainty, a weaker Canadian dollar, lower export revenues, job losses, higher inflation [and] a greater risk of recession.”

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Highlighting a medium-growth scenario, wherein the U.S. imposes a 25 per cent tariff on 10 per cent of Canadian goods and Canada hits back with retaliatory tariffs on U.S. goods, the report says the economic impact could be dulled by “stronger U.S. government spending and higher U.S. demand for imports as a result.”

But even with several economic headwinds, the CMHC said it expects housing market activity in Canada to improve as lower mortgage rates and changes to mortgage rules bring buyers who were previously priced out of the market off the sidelines, along with repeat homebuyers who are looking to upgrade, are rethinking their pandemic-era purchase or are facing mortgage renewals. First-time homebuying millennials are expected to continue to drive housing demand in large urban areas.

“By 2027, we expect much of the pent-up demand to be met,” the report said. “Although mortgage payments and prices will rise, improved job markets and income growth will make housing more attainable than during the 2022 to 2024 period. This will support further recovery in sales.”

• Email: jswitzer@postmedia.com

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