House Prices Fall, but the Market remains Subdued

For business leaders and policymakers, the concern is not simply falling prices, but a structural imbalance that risks prolonging weakness in construction and household spending.

According to CIBC, prices remain too elevated to restore broad affordability, but are not high enough to justify new development at current construction costs. This disconnect is weighing on investment decisions across the residential sector.

Home prices surged during the pandemic and have since retraced toward pre-COVID levels. However, the overall picture masks pronounced regional divergence. In Ontario, benchmark prices sit roughly 28 per cent below their pre-pandemic trend, while British Columbia is about 13 per cent below. Other regions are closer to historical norms.

Headline housing start data suggests resilience, with approximately 260,000 units initiated in 2025. CIBC argues these figures overstate current activity. Adjusted estimates imply that real-time starts in the Greater Toronto and Greater Vancouver Area are lower than official data indicates. In some municipalities, thousands of approved units remain without building permits, reflecting projects that are unviable under present conditions.

Rising property values previously supported consumption through wealth effects and home equity borrowing. With prices retreating, that tailwind is fading. Research cited by CIBC suggests the negative impact of falling home values on household spending may outweigh the boost experienced during upcycles. If central bank models hold, the decline in home prices could translate into a meaningful per-household reduction in economic activity.

Labour market dynamics also warrant attention. Construction employment has flattened nationally, with Ontario and British Columbia absorbing most of the strain. While large-scale layoffs have yet to materialise, some firms are retaining core skilled workers, potentially obscuring deeper softness.

Mortgage renewals represent another pressure point. A segment of borrowers is expected to face significant payment increases this year, even as overall interest rates trend lower. While widespread distress is not anticipated, delinquencies are projected to edge higher.

Although lower prices have modestly improved affordability by reducing required down payments, economists argue this adjustment is insufficient to resolve Canada’s structural housing constraints. Without meaningful reductions in construction and development costs, the market risks remaining trapped between subdued demand and constrained supply.