Canada’s housing market is expected to recover in 2026 but TD Economics is not calling it a comeback year.

In its latest provincial housing outlook, TD forecasts a “modest, gradual recovery” this year after what it describes as a “disappointing” end to 2025. Pent-up demand should help lift activity, but economist Rishi Sondhi says lingering uncertainty, a soft labour market and a neutral interest-rate environment will likely keep the rebound restrained.

A Weaker Handoff from 2025

“After a robust Q3, Canada’s resale housing market lost momentum in the fourth quarter, with sales dipping and average prices coming in flat compared to the prior period,” Sondhi writes, pointing to a softer finish to last year. “This disappointing showing sets 2026 off on a weaker footing and is consistent with a downgrade to our sales and price forecasts for the year ahead.”

Even so, TD says a recovery is still on the table. The bank continues to expect “a modest, gradual recovery will unfold for Canada’s housing market this year,” supported in part by demand that has been sidelined for several years. “Pent-up demand will continue to be satiated and sales receive some support from solid or improved affordability in some markets,” Sondhi says.

Interest Rates Expected to Remain Neutral

Interest rates, however, are unlikely to give the market much of a boost. “In our view, interest rates will be more of a neutral factor for the outlook in 2026,” Sondhi notes, adding that the Bank of Canada is likely to remain “on the sidelines” this year.

That view lines up with Wednesday’s rate decision from the central bank, which held its policy rate at 2.25%. The Bank said the outlook is little changed from October but warned that uncertainty is “heightened,” citing unpredictable US trade policy, geopolitical risks and the upcoming Canada-United States-Mexico Agreement (CUSMA) review.

Ontario is Canada’s “Weakest” Market

Regionally, TD says Ontario continues to lag the rest of the country. The province is the “weakest” housing market in Canada, according to the report. “Demand was hit by economic uncertainty and softness in the labour market,” Sondhi says, while affordability “remained stretched.” A pullback by investors in the condo market has also weighed on activity, particularly in the GTA.

At the same time, supply has been rising as investors list properties amid higher carrying costs, difficulties closing on purchases pre-qualified at ultra-low, pandemic-era interest rates and the “reduced attractiveness of real estate assets due to falling prices and rents.”

“These loose conditions should keep price growth negative, on average, in the first half of 2026,” Sondhi says, before “inching into positive territory” later in the year supported by “significant pent-up demand.” He adds that per capita home sales in Ontario were “some 25 per cent below long-term averages” in December.

BC Nearly as Soft

British Columbia isn’t far behind. “Sales tumbled about six per cent last year,” Sondhi writes, contributing to a roughly three-per-cent decline in average prices. Vancouver posted an even weaker showing, with sales and prices down four per cent and 10 per cent, respectively.

Despite ongoing loose supply-demand conditions, Sondhi says “compositional effects” — including a higher share of expensive homes selling — have helped cushion average prices, even as benchmark prices continue to soften.

Prairie Markets Still Outperforming

Saskatchewan” continues to be one of the hottest housing markets in the country,” posting nine-per-cent price growth in 2025, supported by “solid affordability” and relatively strong job growth. “With Saskatchewan’s economy set to gear down but outperform Canada’s again this year, we see home price growth slowing but remaining solid,” Sondhi says.

Manitoba and Alberta are expected to see more moderate outcomes. Alberta’s market is now “more balanced,” reflecting easing migration, rising listings and cooling, but still positive, job growth.

Atlantic Canada Remains Elevated, But Cooling

Home prices across Atlantic Canada remain historically high, though TD expects growth to ease in 2026. Newfoundland and Labrador led the region in 2025, posting near double-digit price gains for a second straight year, supported by solid sales, strong economic growth and relatively favourable affordability. Tight supply has also helped keep conditions firm. Looking ahead, TD expects both price and sales growth to cool as economic momentum slows and the province records another year of net job losses.

Elsewhere, Prince Edward Island has largely returned to more normal conditions after several years of rapid gains, with price growth expected to track closer to trend. Nova Scotia and New Brunswick also remain relatively tight for now, but softer migration and worsening affordability should limit further upside as the year unfolds.

Quebec Cools After A Strong Run

Quebec was one of the stronger performers in 2025, with home sales rising sharply and prices up about 15 per cent after a flat year in 2023. TD says the surge was driven by firm job and income growth and relatively strong consumer confidence, which “counts as a surprise given its exposure to the trade war,” Sondhi says.

Looking ahead, TD expects momentum to ease. Affordability has deteriorated, job growth is expected to slow and per capita sales are well above long-term averages, suggesting less room for further gains.

Risks Remain on Both Sides

TD also points to another headwind for 2026 : near-zero population growth, which could ripple through rental markets and investor demand.

Sondhi explains, “These newcomers typically have very low homeownership rates when they first enter the country, but rental demand will continue to be negatively impacted. This could feed back into investor demand, as lower rents would reduce the cash-flow from owned properties that are rented out.”

At the same time, risks cut both ways. “Housing activity has had some tendency to surprise expectations to the upside in the past,” Sondhi says, particularly given the scale of pent-up demand in key markets. On the downside, upcoming CUSMA negotiations and geopolitical tensions “loom large” and could keep buyers on the sidelines.

Taken together, TD’s message is straightforward : a recovery is coming, but it is likely to be slow, uneven and highly sensitive to economic and policy shifts.

TD : Housing Recovery Forecast for 2026, Though Headwinds Remain by Jordana Springgay | REM Real Estate Magazine