2024 Housing Market Outlook

Explore the latest trends in Canada’s housing market, covering new homes, resales and rentals. Gain insights on affordability, supply and other key issues in Canada’s census metropolitan areas. Dive into forecasts for major markets and localized insights to make informed housing decisions.


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Highlights

  • Economic growth outlook: Expecting weak economic growth in 2024. We’re projecting a momentum regain in 2025 – 2026 as interest rates decrease.
  • Housing starts prediction: Expecting lower housing starts in 2024. There is a slight improvement forecasted over the next 2 years. Supply challenges, notably the lagged effects of higher interest rates, mean that new construction in 2025 – 2026 won’t reach 2021 – 2023 levels.
  • MLS® price forecast: Forecasting demand to push MLS® prices beyond previous peak levels. This indicates a lack of short-term affordability improvement.
  • MLS® sales rebound: Foreseeing an increase in MLS® sales due to strong population growth. Sales are expected to surpass the past 10-year average levels but remain below the record levels of 2020 – 2021. This is reflective of decreased housing affordability.
  • Rental housing demand: Despite more rental completions, growing demand for rental homes will not be met because the cost of homeownership will lead households to stay in rental housing. Rents will rise and vacancy rates will fall.

Forecasting economic insights and housing trends in 2024 and beyond

Interest rates increases that started in early 2022 to combat inflation resulted in weaker economic growth. This, in turn affected the housing market. Higher mortgage rates made things more difficult for potential homebuyers, leading to less homeownership demand and weaker house price growth.

Higher interest rates made it challenging for builders and developers to get financing. This immediately slowed the construction of smaller buildings such as single-detached homes. We expect interest rate increases to slow apartment starts in 2024. The increased level of apartment starts in 2023 was likely the result of financing secured before interest rates began to rise.

Demand will return and growth in sales and prices will increase as inflation and interest rates decrease. With the weakness in housing supply, affordability challenges will continue. These challenges will be most evident in the rental sector. The 2 key factors that will influence the record-low vacancy rates and rent increases on unit turnover in 2024 are:

  • The higher costs of homeownership driven by elevated interest rates.
  • The reduction in the construction of rental buildings that will further impact the rental market dynamics.

We expect a gradual rebound after a weak 2024

We anticipate weak growth in gross domestic product in 2024 with economic momentum gradually increasing throughout 2025 – 2026.

Consumers were a significant driver of post-pandemic economic recovery, but their spending capacity in 2024 will be constrained by high price levels and interest rates. Moreover, Canadians who financed homes during the pandemic will renew their mortgages at higher rates throughout 2024 – 2027.

Because of the uncertain economy and people's net worth (relative to net income) dropping in 2023, households may spend less money. Reduced consumption has been masked by record population growth stemming from immigration. Per capita household spending has already declined over the last 3 quarters of 2023.

Rising production costs and decreased demand will put pressure on Canadian businesses. Labour market conditions will likely loosen in 2024, with companies unable to absorb a significantly higher labour supply. As a result, the unemployment rate is forecasted to rise by more than 1 percentage point to 6.5% in 2024, which remains slightly below the 10-year average.

To support the slowing economy and booming population, government spending will increase in 2024 and will grow more moderately thereafter.

We expect inflation to fall to the mid-2% range by mid-2024 and then stabilize in the low 2% range in 2025 – 2026. This decline will let the Bank of Canada gradually lower its policy rate from mid-2024.

Anticipated higher real personal disposable incomes and lower interest rates in 2025 – 2026 should gradually increase consumer confidence, stimulating a rebound in GDP growth.

Housing starts decline in 2024 with partial rebound projected for 2025 – 2026

We anticipate housing starts will decline in 2024, continuing the decline from the record high levels of 2021.

Interest rate increases led rapidly to declining starts of smaller structures, particularly single-detached starts.

We anticipate a decline in apartment starts in 2024, following their record-high levels in 2023. Purpose-built rental starts, fueled by unprecedented demand and government support, accounted for over half of these starts. However, unfavourable financing conditions are expected to make more new rental projects unfeasible in 2024.

Some condominium projects may also face delays in 2024. Lower pre-construction sale levels will make securing financing harder. Additionally, despite labour shortages and rising construction costs, developers are handling a record number of units already in development.

In 2025 – 2026, lower interest rates, milder construction cost growth and government support should make more projects viable. Homebuyers can also expect lower interest rates as real incomes and confidence levels improve. Consequently, more homes are expected to be built in 2025 – 2026.

Regional outlook: Ontario and B.C. face challenges, while Prairie provinces thrive

  • The Prairie provinces are expected to perform well due to their affordable home prices and stronger economic outlook. This attracts homebuyers and job seekers, leading to increased home construction with fewer constraints on skilled workers.
  • Ontario and British Columbia are expected to drive the decline in national housing starts for 2024. High home prices will make certain home types unaffordable, while developers may struggle even with apartment construction because of supply-side challenges, particularly financing costs.
  • Quebec housing starts are expected to grow more robustly compared to those in other regions as they realign with fundamental levels but remain below post-pandemic levels. Quebec experienced a sharp decline in new home construction in 2023, before other provinces did.
  • In the Atlantic region, the pressure on new home construction due to unusually strong migration in 2022 – 2023 will ease. Housing starts in certain provinces will remain historically robust but will realign more closely with weaker population growth over the forecast period.

Sales and prices will rise in the coming years

Demand for homes will push prices up throughout the projection horizon. By 2025, prices could reach the peak level recorded in early 2022 and surpass it in the following year. Affordability will therefore be a growing concern.

We anticipate a rebound in MLS® sales and prices from 2024 to 2026, fueled by declining mortgage rates alongside stronger growth in population and real disposable incomes. Sales dropped by about one third from their early 2021 peak to the end of 2023. Prices fell by nearly 15% in the same period. During this time, the pool of potential homebuyers grew through robust population growth, increased savings and higher incomes. As mortgage rates and economic uncertainty decrease in the second half of 2024, we expect buyers to start returning to the market. 

Strong population growth recorded in 2023, the highest since the 1950s, will continue into 2024. This will contribute to the recovery in sales. This resurgence will also be driven by a shift in demand towards lower-priced homes and markets across Canada.

We project sales levels in 2025 – 2026 to slightly surpass the past 10-year average but remain below the record 2020 – 2021 levels because housing will remain expensive for the average household.

Rental demand will continue to outpace supply

Despite some recovery in homeownership demand, many households will struggle to afford homes in 2024 – 2026, leading to increased demand for rentals. Strong population growth will further increase rental housing demand because newcomers tend to rent after arriving in Canada.

We anticipate an increase in purpose-built rental completions over the forecast horizon due to the record number of projects started in 2021 – 2023. However, this increase will not meet the growing demand. As a result, rental markets will remain tight, particularly in the pricier areas of Canada.

Alternative scenarios address elevated levels of uncertainty

To address significant economic uncertainty, we present 2 alternative scenarios and their housing market implications.

Relative to our baseline scenario, the pessimistic scenario anticipates:

  • recession in 2024 and a more modest recovery in 2025 – 2026
  • decreased business confidence resulting in reduced investments
  • persistent inflation keeping interest rates higher than expected
  • reduced real income growth due to slower nominal wage growth, lower labour productivity and higher unemployment rates
  • higher mortgage payments stressing consumers' confidence and spending

This scenario reduces households' ability to manage housing payments and weakens housing demand. Decreased labour productivity and business confidence also lower housing starts.

Relative to our baseline scenario, the high-growth scenario anticipates:

  • stronger economic growth, especially in 2025 – 2026
  • slightly stronger population growth in 2024 – 2026
  • greater immigrant integration boosting labour productivity
  • increased government spending
  • resilient consumption levels driven by substantial increases in real disposable income

In this scenario, housing markets experience increased demand and stronger price pressure due to favourable labour and income market conditions. Additionally, higher population growth and improved labour market outcomes for immigrants add to the demand pressure on rental housing.

2021 to 2023 Summary — Canada

New Home Market — Total Starts
2021 2022 2023
271,198 261,849 240,267
Resale Market
2021 2022 2023
MLS® sales 666,319 498,958 443,511
MLS® average price ($) 687,251 703,959 678,282
Economic Overview
2021 2022 2023
Real GDP (index, 2020=100) 105.3 109.3 110.4
Employment (index, 2020=100) 105.0 109.1 111.8
Mortgage rate (fixed 5-year*) (%) 3.3 4.9 6.0

Forecast Summary — Canada

New Home Market — Total Starts
2024 (Forecast) 2025 (Forecast) 2026 (Forecast)
Pessimistic Baseline High growth Pessimistic Baseline High growth Pessimistic Baseline High growth
215,989 224,485 232,267 223,875 232,276 240,463 226,211 232,084 241,659
Resale Market
2024 (Forecast) 2025 (Forecast) 2026 (Forecast)
Pessimistic Baseline High growth Pessimistic Baseline High growth Pessimistic Baseline High growth
MLS® sales 473,622 482,244 490,481 490,756 520,146 545,972 483,555 525,991 555,341
MLS® average price ($) 703,361 711,429 721,909 755,077 779,357 802,503 776,360 814,851 838,119
Economic Overview
2024 (Forecast) 2025 (Forecast) 2026 (Forecast)
Pessimistic Baseline High growth Pessimistic Baseline High growth Pessimistic Baseline High growth
Real GDP (index, 2020=100) 109.4 110.4 112.1 110.1 112.5 115.6 111.6 115.6 119.1
Employment (index, 2020=100) 112.4 112.6 113.5 113.7 114.4 116.4 115.0 116.0 118.0
Mortgage rate (fixed 5-year*) (%) 6.4 6.3 6.2 6.5 6.0 5.9 6.4 5.7 5.6

*Conventional 5-year fixed mortgage rate (average of rates posted by Canadian lending institutions).

The forecasts included in this document are based on information available as of March 21, 2024.

Sources: CREA, CMHC, Statistics Canada, Haver Analytics

Our Chief Economist and Deputy Chief Economists

Our Chief Economist and Deputy Chief Economists lead a cross-country team of housing economists, analysts and researchers who strive to improve understanding of trends in the economy, housing markets, and how they impact affordability.


  • Bob Dugan
    Chief Economist


  • Aled ab Iorwerth
    Deputy Chief Economist


  • Kevin Hughes
    Deputy Chief Economist


  • Tania Bourassa-Ochoa
    Deputy Chief Economist

Transcript

(Music fades in.)

(Visual: Government of Canada logo, and CMHC logo fade in together. A series of images featuring housing construction across Canada.)

(Visual: Two people are shown in conversation. They sit across from one another at a boardroom table. The two individuals are Joelle Hamilton, Communications & Marketing, CMHC, and Bob Dugan, Chief Economist, CMHC.)

00:00:05

JOELLE: Hello, everyone, and welcome. Today we're going to dive into the latest Housing Market Outlook report which forecasts housing activity for Canada and its six major markets. Joelle Hamilton here, and I'm thrilled to welcome Bob Dugan, CMHC's chief economist. Welcome Bob. Thank you for joining us today.

00:00:25

BOB: Absolutely. Yeah.

00:00:26

JOELLE: Today we're going to be diving into an important topic. It's one of our biggest flagship reports and that is the 2024 Housing Market Outlook Report. And I thought it would make sense for us to start with talking about our future — like the future of our economy and also, mortgage rates, as I'm sure that's on everyone's minds. The outlook suggests that there's going to be weak economic growth into 2024 but that there will be a recovery or some improvement in 2025 and 2026. How do you see changing mortgage rates and economic conditions impacting buyer behaviour and a rebound or recovery of our housing market?

00:01:15

BOB: Well, you know, when you think about the economy, one of the key things that you have to understand is what's going to happen to inflation because that's really what drives interest rates and the behaviour by the Bank of Canada. We've seen great progress. You know, inflation in February was down to 2.8 percent year over year, well below what it has been, you know, since the pandemic. And so that's — you know, we're starting to see the light at the end of the tunnel now. So we've had a very — you know, stagnant economic conditions for some time now. We don't expect 2024 to see any kind of strong growth but because inflation is coming down, we do believe that the Bank of Canada's going to be in a position to cut rates in the second half of this year. And that's what sets the stage for stronger growth in the years ahead. So as interest rates come down, we'll see, you know, variable mortgage rates come down in step. Longer-term mortgage rates not as much though because you know, we have something — there's something called a yield curve and it's inverted right now which means that you know, rates on ten-year bonds are actually lower than rates on two-year bonds and that’s a very unusual situation that has to resolve itself. And so that rebalancing of the yield curve is going to keep longer-term interest rates higher. So five-year fixed rates won't come down by as much but we will see some interest rate relief and that sets the stage, of course, for housing recovery. So we do expect to see, you know, stronger existing home sales and stronger price growth, you know, this year and in the years ahead.

00:02:39

JOELLE: So the report also highlights a drop in housing starts this year with a slight recovery in the following two years. What's driving this trend and how will these factors impact overall supply and affordability?

00:02:53

BOB: You know, with the housing starts forecast key to the — to our view is what happens to multiple starts and so, you know, larger, you know, higher density kinds of starts like apartment buildings, those kinds of things. And what happens is the planning horizon for those things is much longer. And so last year one of the key errors in our forecast really was multiple starts or apartment starts stayed much stronger than expected because, for a lot of these larger projects, the planning is done well in advance.

So you know, financing, for example, would have been locked in at lower rates before they started to really increase and so there was, you know, scope for those multiple starts to stay very strong last year. But now when we do our market intelligence we made a lot of calls to developers and different folks to get an idea of the building plans and what it looks like is this year the conditions aren’t going to be quite as good for multi starts and the current economic conditions of high-interest rates is going to be reflected more in the level of activity.

So we expect multi starts to come down. Overall, though, single starts slowly improving and then by next year we'll start to see starts moving higher again. But that being said, well below levels that we saw a couple of years ago.

I think it was 2021 housing starts were around 270,000 units. In 2022 they were around 260,000 units.

Starts are moving lower. This year we're only expecting somewhere in the neighbourhood of 220,000 units. And so very low by recent year standards and not enough to close the supply gap. So, you know, we talk about this three-and-a-half million unit gap in the supply of housing by 2030. If we want to close that gap, we have to double the pace of housing starts from where it is now and if it — but we're not seeing that in our forecast. So in the long term, concerns about affordability if we can't build the supply to meet the demand and we could probably see, you know, house prices and rents increasing if we don't get the homes built.

00:04:48

JOELLE: That's actually a really great segue into my next question. We all know that homeownership is still out of reach for a lot of first-time homebuyers. Canada's population has grown due to immigration and many are choosing rental — to rent. What — like can you explain kind of what's behind like this trend?

00:05:09

BOB: Well, you know, so with immigration it's a long-standing sort of fact that you know, when they first arrive in Canada they tend to rent first and eventually they move into homeownership. So when you have high levels of immigration, you know, last year, the year before, these are folks that are still in the rental market by and large. Not all of them but most of them. And so that adds a lot of demand for rental housing. And then with higher interest rates even though we've seen, you know, house prices move lower in recent years, with higher interest rates the financing costs or the carrying costs of a mortgage are higher than they were a few years ago when, you know, prices were higher but interest rates were much lower. So, you know, access to homeownership is difficult. We also have to — people have to qualify at higher interest rates now that interest rates are higher. So these factors are meaning that a lot of potential homebuyers aren't able to make the move from the rental market into home ownership and because of this they're staying in a rental. That's demand for rental.

With strong growth in immigration that's demand for rental and without supply keeping pace that means that vacancy rates are moving lower and we're seeing rents increase. And we really see this when we look — you know, in the last couple of years, we've introduced a new measure of rent increases where we distinguish between rents in — for units where tenants stay in the apartment because largely those are controlled by rent control in some provinces or you know, by longer-term leases where the rents are predetermined. But when you look at turnover rent, so when a person moves out of a unit and someone else moves in, those new rents really are a reflection of the market, the tension in the market or the lack of supply. And for Canada last year in non-turnover units, rent growth was closer to five percent but when you look at turnover units it was closer to 24 percent. And there are CMAs like Vancouver where in turnover units the growth was actually closer to 33 percent and in Toronto closer to 40 percent. So that just gives you an idea of how the market being in short supply is really driving a deterioration in affordability for people in the rental market.

00:07:11

JOELLE: So I read in the latest outlook that housing prices are set to rise and may even surpass record levels that we saw, I think it was back in 2021 during the pandemic. What's behind that trend?

00:07:27

BOB: I mean it's a repeat of the story I just talked about. It's a supply shortage, right? And so we don't have enough supply of housing in Canada. So as interest rates begin to move down and you know, there's a lot of pent-up demand for homeownership, people that didn't buy in recent years because of high-interest rates that are waiting to sort of jump in, some of these folks will be entering the homeownership market, and when that starts to happen with limited supply that's going to put upward pressure on prices. So it's the deterioration and affordability isn't just a rental story. It's also a homeownership story. So we need more supply of both kinds of housing. And so with strong demand or stronger demand, we're going to see increases in house prices on average in Canada this year just under five percent, but by next year closer to nine, ten percent growth in house prices. And so that's just a reflection of the shortage of supply, the increasing demand and so again a deterioration in affordability likely for people in the homeownership market as well in the years ahead.

00:08:25

JOELLE: I'm hoping you can expand on the two scenarios that are presented in the Housing Market Outlook report. There's the pessimistic scenario and higher growth scenario. Can you explain both of them and their potential impact on Canada's housing landscape?

00:08:42

BOB: Sure. Well, I think it's first important to recognize that forecasting is not an exact science. And so most forecasts, you know, when you look at them in hindsight a year later are wrong. Not that they're completely off but they're usually wrong. So if we say GDP's going to grow by, you know, .3 percent this year, if it's .4 percent, you know, it'll — there'll be some variation around that. And so you have to sort of look at alternate scenarios where you try to anticipate well, what could go better or what could go worse and how does that look for the economy and then how does that look for the housing market just to give people a range of outcomes so they can understand, you know, what our point forecast is but also what kind of range around that there might be to sort of see, you know, what could the housing market look like in a higher growth scenario or a lower growth scenario.

In our low growth scenario, we try to recognize the fact that, you know, inflation has been more persistent than most people had expected. And you know, when you think about interest rates and you look at people's expectations for interest rates, the cut in interest rates keeps being pushed down the road by higher inflation. And so right now our point forecast as rates start to come down in the second half of this year but if inflation is persistent, the Bank of Canada will have to keep the fight up against inflation because they have a target of two percent. They want to get inflation back down there and you know, their credibility rests around their ability to achieve that objective. So they want to make sure inflation moves back down towards two percent. If progress is slower that means interest rates stay higher. That slows the economy but also puts pressure on Canadian homeowners because we have a high level of household debt in Canada and we have a lot of mortgages that have yet to renew at higher rates.

So many homeowners that bought three, four, five years ago still have their low mortgage rates but when their terms are up for renewal they face a higher mortgage rate that'll squeeze their budgets because now all of a sudden their mortgage payments go up because of the higher rates. And so these kinds of things are what we see happening in our downside scenario. Higher rates, households facing a higher interest rate burden on the debt that they hold and that slows the economy. On the upside, one of the things that's helped, you know, the Canadian economy grow in recent years has been the strong level of immigration. And so stronger population growth due to immigration in the forecast period is part of what tells the story of why growth might be higher but also, we assume Canada has a problem with labour productivity and it's very low compared to other G7 countries. We also factor in a bit of an improvement in productivity as immigrants get integrated into the labour force and that improves productivity growth, income growth, and that leads to a higher growth scenario for the economy. In both these situations — in the high-growth scenario what it means is we're going to see stronger growth and demand for both rental and ownership housing. That means more upward pressure on, you know, rents and home prices and possibly a bigger deterioration in affordability offset somewhat by stronger income growth but generally a bigger deterioration in affordability because we don't see starts rebounding enough to make up for the extra demand in this scenario.

In the lower growth scenario, of course, we get a little bit of relief on homeownership demand but maybe more deterioration in the affordability of the rental market because if interest rates stay higher for longer and more people are burdened by their heavy debt levels it's harder for them to get — make that move from rental to homeownership. And so you know, it'll mean maybe more of a deterioration in the rental market affordability and higher interest rates making homeownership less accessible for many Canadians.

00:12:21

JOELLE: So you dove into a little bit of some regional trends but I'm hoping that you can expand on what's happening in Canada's six biggest cities.

00:12:32

BOB: The story is going to be very similar across most of the cities, you know, with some timing differences. And so basically one of the key drivers of what's going to happen in the housing market is the fact that the economy's going to strengthen and interest rates are going to come down. And so in certain parts of the country, they'll see the benefits a little bit sooner. Like we actually expect that housing starts in Montréal will stabilize this year, you know, and housing demand will increase and we'll see more MLS sales and house price increases.

In Vancouver, you know, they're one of the two cities — when I think about Toronto and Vancouver, these are the two cities where we had the biggest error in our multiples forecast last year when I was explaining earlier about how these are longer-term horizons projects. Well, this is where we see some of the weakness in multiple starts this year. So in both Vancouver and Toronto, we expect multiple starts to be lower which will hold back housing starts. But we do expect MLS sales in both of these places to increase and price growth to resume but a little bit not quite as much optimism on the housing starts forecast because of what's going to happen to multis this year being slower, so. But then eventually next year in Toronto, Vancouver, we should see starts begin to improve as well. And so it's just really a bit of a timing difference but you know, most places are going to start to see that recovery in housing markets. It just depends on with housing starts when that actually starts to take hold.

00:13:55

JOELLE: We're down to my last question. Do you have any advice or key takeaways for builders, for policy makers that may be using the information contained in our outlook to make future decisions?

00:14:12

BOB: Well, I'm hoping that this outlook — especially when you look at the housing starts, it really tells a story that housing supply is not going to bridge the gap. We need it to, according to our forecast right now, to restore affordability by 2030. As I said earlier, we would need starts to double the pace that we're forecasting each and every year. And so I think this forecast is a bit of a warning that we have to get serious about — and we are serious about it.

But we have to make sure we get those homes built if we want to see that improvement in affordability because with our baseline forecast and starts sort of in that 220 to 230,000 unit range over the next several years it's not enough to close that gap. And the real risk is we're going to see a further deterioration in affordability for both homeowners and for people in the rental market.

00:15:00

JOELLE: Bob, thank you so much for sitting down with me today and providing us with some really great insights into the 2024 Housing Market Outlook. It's been a pleasure having you in the podcast studio today and I look forward to you coming back soon.

00:15:14

BOB: My pleasure. So long.

00:15:15

JOELLE: And thank you to our viewers today. Stay tuned. In the coming weeks, we'll release our full Housing Market Outlook which will dive into additional markets. And we do want to hear from you. Feel free to leave a comment with your feedback on the report or this discussion. And be sure to subscribe to our YouTube channel for more conversations that matter here on our podcast. Until next time.

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Date Published: April 4, 2024