TD Economics has drastically revised its outlook for Canada's housing market in 2026. The bank now predicts declines in both home sales and prices this year, a sharp reversal from expectations just months ago.

From Growth to Decline

Back in December, TD had forecast a bright year ahead for Canadian real estate. Sales were expected to jump by 9.3 per cent, and home prices were set to climb 4.1 per cent on average. But recent data have forced a rethink. The bank now anticipates a 1.8 per cent drop in sales year-over-year and a slight 0.3 per cent dip in average home prices nationwide.

"The housing market hit a rough patch in the first quarter," said Rishi Sondhi, TD's senior economist. "Weather issues in Central and Atlantic Canada played a role, but even regions with better conditions like B.C. Saw weakness." The broader economy's sluggishness and ongoing cost-of-living pressures are keeping buyers cautious.

Regional Struggles

Ontario and British Columbia are bearing the brunt of this downturn. Both provinces suffered "significant" first-quarter drops in sales and prices, leading TD to slash its forecasts dramatically. Ontario, which was expected to see a 13 per cent rise in sales, is now predicted to experience a 3.2 per cent decline. B.C.'s sales are forecast to fall 0.2 per cent instead of rising by over 15 per cent.

Price expectations have also been trimmed. Ontario's home prices are forecast to fall 4 per cent, a sharp contrast to December’s modest 0.6 per cent increase prediction. B.C.

Will probably see a 1.2 per cent price decline, down from a previously forecasted 3.6 per cent rise.

Potential buyers in these provinces are facing steep affordability challenges. Sondhi noted that "pent-up demand has yet to re-emerge as quickly as expected," meaning prices may need to drop further before activity picks up.

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Economic and Geopolitical Uncertainties

There are some important caveats to this forecast. Sondhi pointed out risks that could shake the market. An extended escalation of tensions in the Middle East might boost activity in oil-producing regions but hit oil-importing areas harder. That could spur faster-than-expected demand in Ontario and B.C.

Negotiations surrounding the Canada-United States-Mexico Agreement (CUSMA) also cast a shadow over economic stability. Outcomes from these talks could influence employment and consumer confidence, affecting housing demand.

Looking Beyond 2026

TD is optimistic about what 2027 might bring.

The bank anticipates a rebound in sales, driven by improved economic and job market conditions. Home sales could rise nearly 10 per cent, with prices following suit. This optimism hinges on a more stable economy and easing affordability pressures.

Still, the market is slowing down in the near term. Recent Canadian housing data show sluggish activity extending into early spring, with average prices down nearly 5 per cent compared to last year. The outlook paints a picture of a market still adjusting to higher borrowing costs and economic uncertainty.

U.S. Market Offers Contrast

While Canada faces a dip, housing forecasts south of the border differ. American experts expect slower growth rather than a crash. Zillow and Realtor.com suggest modest price increases and slight sales upticks in 2026. Falling mortgage rates and more listings are balancing supply and demand in many U.S. Markets.

Still, affordability remains a hurdle on both sides of the border. Many U.S. Homeowners with low mortgage rates hesitate to sell, keeping inventory tight. Analysts warn that waiting for a dramatic price drop might cost buyers more in the long run if prices continue to rise modestly.

"A crash is a complete system break," Michael Ryan, a U.S. Finance expert, told Newsweek. "What we're seeing is a reset — stagnation, not collapse."

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Canadian buyers and sellers will likely need to be patient this year. The housing market’s direction hinges on economic recovery and geopolitical developments yet to unfold.

This article was created with AI assistance.