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Framers work on new housing construction in Calgary, Alberta, March 16, 2015.Todd Korol/The Globe and Mail

After years of tolerating sky-high house prices, Canadian buyers are set to start flocking to more affordable homes and many others will opt to keep renting instead, helping to take more steam out of the housing market, the federal housing agency predicts.

New-home construction will slow over the next two years as low oil prices continue to take their toll on the economy despite rock-bottom interest rates, Canada Mortgage and Housing Agency said in a new housing-market forecast. Prices of resale homes will rise 3.4 per cent this year before slowing to 1.5 per cent next year.

Oil-dependent provinces such as Alberta and Saskatchewan will bear the brunt of the slowdown in the market, CMHC said. Home prices will fall below the national average in Alberta as oil settles around $50 to $60 (U.S.) a barrel this year.

Outside of Western oil economies, much of the expected slowdown reflects the shifting preferences among buyers, who had been flocking to high-priced newly built detached homes in the past year, but who may start looking toward older entry-level resale homes and more affordable new builds, such as townhouses and condos, where ample supply has kept prices from rising too quickly.

That will be particularly true in expensive markets such as Toronto and Vancouver, where CMHC expects rising mortgage rates next year will put a damper on demand for detached homes. "As mortgage carrying costs continue to grow, particularly for single-family homes, demand will increasingly shift to more affordable housing," said Ted Tsiakopoulos, CMHC's regional economist for Ontario.

Both cities are likely to see rising demand for rental apartments among buyers priced out of the housing market. In Toronto, the affordability crunch is likely to lead to a surge of new construction in rental-apartment buildings and new condo projects being turned into rentals instead, according to a new report on Toronto-area residential development by real estate services company Colliers International.

In Vancouver, where land prices are still too high to justify building rental apartments, most new rentals are in the form of "mortgage helpers," usually detached homes that have basement apartments or a small rental home built in the backyard, known as a laneway house. Roughly 80 per cent of all newly built single-family homes in Vancouver now have some sort of rental suite as part of the property, "effectively making the single-detached homes lower-density, multiple-family dwellings," CMHC said.

Nationally, CMHC expects the average resale home price to range from $402,139 to $439,589 by the end of this year. Reflecting the level of uncertainty among economists about the future of interest rates and oil prices, CMHC says average home prices could fall to as low as $398,191 in 2016 or could rise to as high as $457,200.

The federal housing agency also says it expects that mortgage rates will rise slightly over the next two years, with five-year posted rates set to range from 4 to 5.5 per cent this year, rising to 4.2 to 6.2 per cent next year.

Provincial forecasts:


Migration, both from other countries and from within Canada, will help sustain B.C.'s already strong housing market over the next two years. Average resale prices will jump 5.8 per cent this year and 2.1 per cent in 2016.


Rising unemployment and a fall in the number of temporary foreign workers will hit Alberta's housing market. New home construction will slow as low oil prices push Alberta into a buyer's market. Average resale prices will fall 3.7 per cent this year before rising 1.1 per cent next year.


Unemployment will rise from 3.8 per cent this year to 4.6 per cent in 2016, pushing prices down. Average resale prices will drop 0.7 per cent this year and then rise 1 per cent the year after.


The province will see some of the strongest economic growth in the country over the next two years, with GDP growing by 2.4 per cent this year and 2.2 per cent the next. Rising wages and immigration will help Manitoba's housing market, although a recent building boom has meant there's plenty of listings for buyers to choose from. Average resale prices are expected to rise 1.2 per cent this year and 1.5 per cent in 2016.


Ontario's economic growth rate will surpass the national average for the first time in a decade, CMHC says, although it will remain below the province's historic average as businesses boost productivity through investment in new equipment rather than new workers. The unemployment rate will fall slightly over the next two years, but the growing price gap between condos and houses will curb construction of new homes. Average resale price growth will slow to 3.6 per cent this year and 1.7 per cent next year, down from 7 per cent in 2014.


Cheaper oil prices and a low dollar are starting to have an impact on Quebec's economy, helping to boost its housing market. Even so, CMHC predicts unemployment will rise slightly and the glut of new homes, particularly condos, from recent years will keep prices from growing too quickly. Average resale home prices are expected to rise 2.4 per cent this year and another 1.9 per cent in 2016.

New Brunswick

A low dollar and an improving U.S. economy is helping New Brunswick's export economy. But with unemployment on the rise and the number of homes listed for sale at historically high levels, the province's housing market is set to remain weak over the next two years. Average resale prices will drop 0.5 per cent this year and 0.6 per cent the year after.

Nova Scotia

The start of a major federal government shipbuilding contract this year will help boost the province's economy, but beyond that Nova Scotia's employment growth is expected to remain slow. Average resale prices have been falling the past two years, but are expected to turn around, growing 0.3 per cent this year and 0.5 per cent the following year.


More Canadians will be looking to vacation closer to home thanks to a weaker loonie, which should help P.E.I.'s tourism industry, CMHC said. Despite improving economic conditions, unemployment should rise slightly. The housing market outside of Charlottetown is expected to bear the brunt of slower job growth, with average resale prices falling 1.5 per cent this year and growing by just 0.3 per cent next year. That's down sharply from the 5-per-cent price growth the province's housing market saw last year.


The province's housing market will feel the pinch of lower oil prices. Unemployment will likely surpass 13 per cent by next year, CMHC predicts. Home-construction activity will slow, while home prices will likely rise below the rate of inflation. Average resale prices will likely stay flat, growing by just 0.1 per cent this year before rebounding by 1.1 per cent in 2016.