Housing starts rose in 2025 but CMHC warns construction momentum has faded

Canada’s homebuilding numbers looked healthier in 2025, with housing starts up 5.6% from 2024 to 259,028 units, the fifth‑highest annual total on record.

Canada Mortgage and Housing Corporation (CMHC) said on Friday that actual starts in centres with populations of 10,000 or more climbed 6% to 241,171, powered by a second straight year of record rental construction that made up just over half of urban starts.

Beneath those headline gains, though, the picture for new supply grew more fragile. Canada’s six largest Census Metropolitan Areas (CMAs) posted a combined 3.9% annual increase, but record activity in Calgary, Edmonton, Montréal and Ottawa–Gatineau merely offset sharp drops in Toronto (down 31%) and Vancouver (down 3%).

December’s seasonally adjusted annualized rate rose 11% from November to 282,439 units, yet the six‑month trend was essentially flat at 264,428.

Housing momentum shifted toward rentals

“While housing starts in 2025 finished ahead of 2024 and inched up in December, most of the momentum in housing construction occurred in the Spring and Summer. Since September, the trend in housing starts has consistently decreased. In 2025, economic uncertainty and the diminished viability of large residential towers encouraged a shift towards smaller-scale projects,” said Mathieu Laberge, chief economist and SVP, housing insights at CMHC.

“As such, housing starts are beginning this year from a weaker position and market intelligence suggests slowing momentum for residential construction. These trends, along with geopolitical and trade uncertainty, remain top of mind as we expect to release an updated Housing Market Outlook in February.”

That shift toward multi‑unit rentals has already been evident through much of last year. In a mid‑2025 update, CMHC deputy chief economist Tania Bourassa‑Ochoa noted that “through the first seven months of the year, actual housing starts have remained above 2024 levels, primarily driven by increased multi-unit starts in the Prairie provinces and Quebec.”

A long way from affordability targets

Despite 2025’s modest rebound, the level of construction still fell well short of what CMHC said was needed to restore affordability.

The agency estimated that millions of new homes are required to restore housing affordability in Canada by 2030, with modelling pointing to a shortfall of around 30,000 starts in 2023 alone.

Subsequent analysis suggested between 430,000 and 480,000 new housing units per year would be required across ownership and rental markets by 2035 – roughly double recent building volumes – to close the supply gap. 

Meanwhile, Danny Di Meo, president and founder of Toronto-based builder Caliber Homes, told Canadian Mortgage Professional there remained a disconnect in the current market between demand for homes and the feasibility of delivering that supply.

“There’s still real demand for housing but high interest rates, construction financing constraints, and cost pressures have made many projects – especially high-density ones – difficult to launch. We’ve seen a lot of projects across the GTA [Greater Toronto Area] go on hold for that reason,” he said.

“If municipalities can speed up site plan reviews, align permitting with infrastructure servicing, and reduce some of the red tape in the early stages, that would make a big impact.”

Moreover, sluggish housing starts and delayed projects threaten to drag down the economy, Fraser Institute previously warned. Canadian Home Builders’ Association (CHBA) chief executive officer Kevin Lee also said that Canada’s homebuilding crisis may already be even worse than it seems with housing starts essentially skewed by construction of purpose-built rental accommodation.

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Montreal’s 2025 home sales climb even as year ends on softer note

Montreal’s housing market ended 2025 on a softer note even as the full year showed clear gains in sales and prices, underscoring the delicate balance facing brokers, lenders and borrowers in Quebec’s largest metro.

According to the Quebec Professional Association of Real Estate Brokers (QPAREB), Montreal-area home sales fell on a year-over-year basis in December, despite more activity overall for the region in 2025. 

The board reported that 2,831 properties changed hands in the Montreal census metropolitan area in December, down 10% from 3,145 a year earlier, even as annual sales for 2025 came in higher than in 2024.

At the same time, sales were 7.7% higher overall for the year as a whole, as median prices also rose across each housing type.

Listings, prices and December’s pullback

On the supply side, the board said new listings totalled 2,529 for December, down 5% year-over-year, but rose 9.4% overall in 2025.

Median home prices were reported higher across all categories in December, led by a 7.8% increase for a single-family home to $625,000. The median price of a plex rose to $830,000 year-over-year in December (4.1%), while the median price of a condominium increased to $425,000 (1.4%).

Earlier in the year, Montreal’s residential real estate market saw a sharp uptick in September, with sales across the census metropolitan area (CMA) rising 11% year-over-year to 3,520 transactions. That momentum, combined with rate cuts from the Bank of Canada, helped underpin demand even as borrowing costs remained elevated by historical standards; the central bank’s policy rate, which had peaked at 5.0% in mid‑2023, had dropped to 2.75% by March 2025.

Affordability strain stayed front and centre

The improvement in volumes did little to ease affordability pressures. A recent QPAREB study found that the share of after-tax family income devoted to monthly mortgage payments has more than doubled at the provincial level, rising from 15% to 32%.

“Montreal families now allocate nearly 48% of their income to mortgage payments,” the study added. “Current conditions leave little hope for a rapid improvement in affordability,” said Charles Brant, QPAREB’s market analysis director.

For mortgage professionals, the 2025 figures highlights a market where lower rates and rising sales meet persistent income and price constraints.

As Hélène Bégin, QPAREB senior economist, previously said, “A family’s financial ability to become a homeowner in their region depends largely on their disposable income, which must be sufficient to cover mortgage payments.”

In Montreal, 2025 closed as another year in which buyers did more deals, but only by stretching harder to make them work.

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RBC warns of ‘bumpy’ road as housing recovery stalls again

A subdued December capped what RBC Economics called a “lackluster” 2025 for Canada’s housing markets, as early signs of recovery in major centres faded under the weight of affordability strains, a trade war and softer labour conditions.

“Adverse weather may have been a factor in some cases, but persistent affordability challenges, economic uncertainty and job market softness have, no doubt, kept many prospective homebuyers at a standstill,” said Robert Hogue, assistant chief economist at RBC.

Across Vancouver, Calgary, Toronto, Montreal and other large markets, “promising recoveries” that have followed significant interest rate cuts were “quickly dashed by the trade war, and ensuing loss of confidence,” Hogue said.

In earlier commentary, he warned that tariff risks could “spook” buyers and hand even more pricing power to those still active.

Subdued resales, sharper splits by region

In Toronto, an early winter “became the latest roadblock to the Greater Toronto Area’s recovery,” with resales falling for the fourth time in five months and remaining about 25% below pre‑pandemic levels.

“Resales remained stalled in December, sustaining significant downward price pressure amid abundant inventory and fierce seller competition,” Hogue said.

Prices also retreated in Vancouver and Calgary, where a “doubling in homes for sale since 2022” and a historic ramp‑up in homebuilding to a record 26,000 units under construction weighed on values.

Hogue said he expected “home values to continue easing in the short term as more supply comes to the market.”

Montreal, meanwhile, “went through a soft patch.” Resales slipped late in the year, but inventory remained historically tight and single‑family prices were still up 7.8% year over year, outpacing condos.

Rate cuts, but limited relief for borrowers

RBC’s latest housing forecast stressed that the Bank of Canada’s rate cuts since mid‑2024 have “yet to fully play out,” even as they helped set the stage for a gradual recovery.

Hogue previously said that “recent signs of an ongoing recovery have emerged,” but cautioned that high costs and weaker immigration would keep the rebound “gradual” at best.

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CMHC's mortgage rule change leaves builders and investors in limbo

A sudden policy shift by Canada Mortgage and Housing Corporation (CMHC) has left builders and real estate investors scrambling, as the agency moves to block bundling single-family home purchases under its Mortgage Loan Insurance Select (MLI Select) program. Critics argue the unexpected change may jeopardize millions of dollars in planned housing projects.

At the end of February, CMHC informed lenders that it would no longer approve MLI Select applications unless at least five rental units were in the same building and on the same lot. Previously, investors could bundle adjacent single-family, semi-detached, and townhouse properties into a single application.

This financing model helped insure 206,157 housing units, generating $47 billion in “insured volume” during the first three quarters of 2024.

Industry backlash

Investors and mortgage brokers say the change came without consultation, leaving many deals stranded. Tawfiq Abdulsamad, an Edmonton investor, said he was blindsided after CMHC rejected his application to finance three detached homes with basement apartments—totalling six rental units—under MLI Select.

“I heard from other people that had purchased the detached product in the past that the CMHC just started declining without saying anything,” Abdulsamad told the Globe and Mail, noting he would not have bought these properties if he had known traditional financing was his only option.

The rejection means Abdulsamad must seek alternative financing, requiring a 20% down payment or costly private lending.

Jake Steinman, CEO of Meta Realty, said his firm has at least 10 deals covering 100 units—valued at $35 million to $40 million—now in jeopardy. He estimates up to $50 million in deposits have been paid for properties that may not secure comparable financing.

“No one ever thought CMHC was going to pull the rug,” Steinman said.

CMHC’s justification

CMHC denies the new restrictions constitute a policy change, calling it a “clarification.”

“We had seen a slight increase in the complexity of projects where properties with less than five housing units were being bundled,” said CMHC spokesperson Monique LaPlante. “Our clarification sought to provide an enhanced understanding of our expectations.”

Some industry experts believe CMHC is trying to prevent large commercial investors from dominating the market.

“The typical profile of someone buying between five- to 10-units was they tended to be investors that already had investments in residential single family, or duplexes. This was often their first foray into a commercial mortgage,” said Nadeem Keshavjee, president of GreenBirch Capital Inc.

Impact on housing

Industry groups warn the new restrictions will slow rental housing development. Scott Fash, CEO of the BILD Alberta Association, said the change will limit buyers and reduce rental construction in 2025 and criticized CMHC’s handling of the shift, arguing existing applications should have been grandfathered in.

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Canadian employers hold pay gains as mortgage stress lingers into 2026

Most large Canadian employers plan to keep salary increase budgets for 2026 at 2025 levels, even as workers and mortgage borrowers continue to grapple with elevated interest rates and stubborn inflation.

According to Mercer’s October 2025 QuickPulse CA Compensation Planning Survey of more than 460 organizations, companies expected to hold average merit raises at 3.0% and total salary increases – including promotions, cost-of-living and other adjustments – at 3.3% next year, matching what they delivered in 2025.

Those projections point to only modest income growth for households already squeezed by higher mortgage payments and renewal risk.

Employers in consumer goods, non‑manufacturing and energy project average total increases below the 3.3% national benchmark, while chemicals and high‑tech organizations expect to come in higher, at 4.0% and 3.8% respectively. 

“Despite lingering uncertainty in the Canadian economy, companies were still spending money to attract and retain employees,” said Elizabeth English, senior principal in Mercer Canada’s career products business.

“Companies should consider allocating a higher percentage of their compensation budget increases to areas with skills that are in high demand to help address talent needs.”

At the same time, 66% of organizations said the broader economy would have a moderate or significant impact on compensation decisions in 2026, and 80% indicated they would distribute salary increase budgets equally across the organization rather than tilt them toward scarce skills or hard‑to‑fill roles.

Promotion activity also looks set to slow, with employers planning to promote about 8.7% of their workforce in 2026, down from 9.8% in 2025, with average promotional bumps of 9%. 

AI and automation, meanwhile, appeared to have had limited impact on hiring and pay decisions so far. Only 1% of respondents cited AI as a reason for reduced hiring, and just 3% said they were proactively planning headcount changes tied to AI.

“While AI was changing the way many employees and companies worked, there was still a critical need for human beings to use the tools and provide their judgment,” said Teresa Palandra, Mercer’s Canada president.

“Most companies were using AI to help employees be more productive, rather than replace people all together, which explained the limited impact of AI on compensation and hiring decisions so far.”

For mortgage professionals, the flat pay picture lands against a backdrop of sticky inflation and a higher‑for‑longer rate environment. Market participants recently expected inflation to remain above 2% through 2025 and 2026, drawing on Bank of Canada surveys.

In a separate analysis, Desjardins noted that the Bank of Canada is expected to hold its policy rate steady for an extended period as it waits for further progress on core inflation, underscoring the prospect of prolonged strain on indebted households.

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We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

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