Housing starts will decline in 2024 before recovering over next two years

After reaching historically high levels in recent years, housing starts in Canada are expected to decline in 2024, before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction, says the Housing Market Outlook (HMO)  by Canada Mortgage and Housing Corporation (CMHC).

In the homeownership market, both home prices and sales are forecast to rise in 2024. By 2025, prices could reach the peak levels recorded in early 2022 and surpass them in 2026, driven by high demand. Home sales will rebound in 2024, but will remain below the record 2020-21 levels, restricted by affordability challenges among prospective buyers.

“Purpose-built rental starts, fueled by unprecedented demand and government support, hit record levels in 2023, sustaining overall housing starts in Canada near historically high levels,” says Bob Dugan, chief economist for CMHC. “However, unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024. We anticipate by 2025-2026 lower interest rates, continued government support, and policies encouraging greater density in urban centers should make more projects viable. Lower interest rates will also benefit homebuyers, as real income and confidence levels improve. Consequently, more homes are expected to be built in 2025-2026.”