Your not-so-average 2026 predictions

The defining headwind heading into 2026 isn’t just interest rates, it’s confidence.

We are working with buyers today who are financially ready, fully qualified, and motivated, yet hesitant. The question isn’t whether they can buy, it’s whether they should buy now or wait for prices to fall further.

There is also a broader economic unease that’s difficult to quantify but easy to feel. Many clients describe it the same way: “something feels off”. That feeling is more pronounced than anything we experienced during 2008 or 2009.

A major contributor to this uncertainty is the upcoming USMCA (CUSMA) renewal in June 2026. After strained Canada–U.S. relations throughout 2025, including recent rhetoric out of Davos about a rupture in the global order and Canada pursuing greater strategic autonomy, there is legitimate concern around how these negotiations unfold.

Roughly 85% of Canada’s exports to the U.S. are currently tariff-exempt. Any disruption to that framework would have serious implications for jobs, investment, and overall economic confidence.

Over the past decade, Canada and the United States took very different paths with capital.

In the U.S., savings were largely invested into new businesses, machinery, R&D, and innovation. In Canada, capital overwhelmingly flowed into real estate.

With double-digit annual returns available through leverage, Canadians effectively sold real estate back and forth to one another without producing new goods or services, playing a game of hot potato as valuations soared.

When you include construction, finance, insurance, sales, leasing, and related services, real estate now represents an estimated 30–40% of Canada’s GDP. Meanwhile, sectors such as manufacturing and industrial investment have stagnated or declined.

This is why policymakers are acutely aware that a prolonged housing downturn is not just a housing issue, it is an economic one.

Condos

We believe condo prices will end 2026 down an additional 7% on average. Roughly 30,000 new units are expected to complete construction, while significant dormant inventory held by developers and large investors continues to quietly enter the market.

As rents soften and negative cash flow persists, we expect increased investor capitulation, more power of sale listings, and continued pressure on investor-focused units, particularly smaller one-bedroom layouts.

Freehold Homes (Detached and Semi-Detached)

Freeholds tell a different story. We simply are not building meaningful new freehold supply anymore, and that lack of supply creates a natural floor under prices.

We expect freehold prices to end 2026 down a more moderate 4%. As borrowing costs ease and prices adjust lower, affordability improves enough to bring buyers back into this segment. Even modest improvements in sentiment can have an outsized impact when supply is this constrained, which is why freeholds are likely to be the first segment to show renewed activity.

Sales are ultimately driven by a combination of affordability and sentiment.

To put things in perspective, 2025 ended with approximately 23,270 sales in Toronto, well below the pre-COVID norm of roughly 32,000 annual sales. Since then, both population and housing supply have increased, yet transaction volume has remained suppressed.

We believe 2025 marked the bottom for sales activity. There is now two to three years of pent-up demand from buyers who have been waiting patiently on the sidelines. As prices and interest rates continue to ease, and as buyers gain more clarity around the economy, that demand should begin to re-enter the market.

We expect a modest pickup in activity this spring, followed by a more meaningful acceleration in the second half of 2026.

The Bank of Canada is walking a very narrow path. Inflation has eased, but remains persistent in essentials like food, while economic growth remains fragile and heavily supported by government hiring.

Complicating matters further, the federal government is running the largest deficit in Canadian history. Large and sustained deficits are inherently inflationary, which makes the Bank of Canada’s job significantly harder as it tries to balance economic weakness against inflation risk.

Our expectation is that interest rates end 2026 approximately 50 basis points lower than today.

Because real estate is such a large component of Canada’s economy, we also expect government intervention. Potential policy changes in 2026 could include removing the foreign buyer ban to support pre-construction and construction jobs, eliminating the mortgage stress test to immediately improve affordability, and, in a more severe downturn, extending amortizations as a last-resort measure.

For the first time in years, time and options have returned to the market.

Buyers are no longer forced to make decisions the day a property hits the market. Conditions are back. Negotiation is back. Proper due diligence is back.

In many pockets of the GTA, prices have returned to 2018–2020 levels. One-bedroom condos can be found well under $500,000, starter detached homes are available under $1 million, and move-up buyers have strong selection in the $1.3 to $1.6 million range.

With mortgage rates now around 3.7%, the math of homeownership is starting to make sense again.