CIBC warns falling prices are now hurting, not helping, the wider economy
Canada’s housing downturn has moved past a simple price correction and into something more structural, CIBC Capital Markets argued in a new report.
CIBC economists Benjamin Tal and Katherine Judge framed the current juncture bluntly. “The best way to describe the current state of the housing market is to say that prices are still too high to buy and not high enough to build,” they wrote. “The economics of homebuilding, mainly in the high-rise space, is simply broken.”
They stressed that while prices have retreated from pandemic highs, affordability in major centres remained strained.
“Improved affordability due to lower prices is a welcome development, but it is not large enough to offset the negatives nor is it the remedy to the country’s housing affordability crisis,” the economists wrote.
“The current soft patch in housing activity should be viewed as an opportunity to deal with the main reason for high shelter prices in Canada – the unsustainably high cost of homebuilding.”
Regionally, the correction has been sharpest in Ontario and British Columbia, where CIBC said benchmark prices sat roughly 28% and 13% below pre‑COVID trendlines.
The deepest damage emerged in condos, with Tal and Judge warning that oversupply has pushed prices “35% below the trendline” nationally, and that “condo markets in cities outside Toronto and Vancouver are starting to show early signs of stress.”
Condo starts have pulled back in Toronto and Vancouver as investors exited and projects were delayed, even while completed units continued to flood the market, eroding returns for leveraged owners and pushing developers toward purpose‑built rentals.
Hidden downturn in construction
One of Tal and Judge’s strongest warnings concerned housing starts data. Official figures showed starts averaging about 260,000 units in 2025, up 5% from 2024, but CIBC said that was misleading because Canada Mortgage and Housing Corporation only recorded a “start” when foundations reached grade – often a year or more after projects effectively began.
“Simply put, today’s high rise housing starts statistics inform us about activity in late 2024, and not about the here and now,” they wrote.
Using third‑party project trackers, CIBC estimated that “in the GTA and the GVA, the real level of housing starts is roughly 50% and 30% below the headline numbers, respectively.”
Mike Moffatt of the Missing Middle Initiative pointed to a similar disconnect in Ontario, where he said annualized starts were running at “barely 30%” of the province’s 175,000‑unit target, with single‑detached, semi‑detached and row home starts hitting a record low for January.
Canada’s housing starts fell 15% in January to 238,049 units, marking the fourth consecutive monthly decline in CMHC’s trend measure.https://t.co/62MKZhucGP
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 17, 2026
Wealth effects, renewals and consumer strain
Beyond construction, the report argued that falling prices were starting to bite through weaker wealth effects and tighter access to home‑equity credit.
Citing Bank of Canada research, Tal and Judge noted past estimates that every dollar of housing wealth added roughly 5.7 cents to spending – a relationship they said likely worked in reverse and may be stronger on the downside. That implied hit of over $5000 per household from recent price declines was a back‑of‑the‑envelope calculation.
They also estimated that “close to 6% of the mortgage portfolio will face more than a 40% increase in mortgage debt payments upon renewal this year,” even as most borrowers renewed at lower rates.
Still, the economists said, “it is reasonable to expect a further increase in delinquency rates in the coming quarters,” particularly in Ontario and B.C., where prices have fallen below 2021 levels and refinancing options have narrowed.
For some buyers, modest relief emerged: CIBC estimated the national average price dropped by about $110,000 from the 2022 peak, trimming required down payments and nudging more first‑time purchasers into the market. Yet the bank concluded that those gains remained too small to offset the drag from weaker construction, fading consumer confidence and a condo sector that swung from workhorse to weak link.
Until governments and industry could meaningfully reduce the cost of building – not just stimulate demand – the market risks staying stuck where Tal and Judge left it: “still too high to buy and not high enough to build.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
