(Bloomberg) — Canada’s housing market has plunged into one of its sharpest-ever corrections. Canadians say it hasn’t gone far enough.

After a record surge in home prices following the COVID-19 pandemic, slower population growth and increased supply in some communities have triggered a steep reversal. Benchmark prices have fallen by about 20% nationally since 2022, and more than 30% in some cities.

That should be welcome news for first-time buyers, but the pullback still isn’t enough to change the equation for many residents who have long been priced out.

About 55% of Canadians want home prices to fall further, with that figure jumping to 69% among 18- to 34-year-olds, according to a Nanos Research Group poll for Bloomberg News.

Even among homeowners, two-thirds told Nanos the price decline to date was a positive or somewhat positive development for the housing market. That was roughly the same as the overall response among Canadians.

“If you just look at the numbers, you would very quickly conclude this is a massive crash in home prices. But the thing is, it’s after prices had increased even more,” said Robert Hogue, assistant chief economist at Royal Bank of Canada. “We’re just reversing what some would argue — and I would argue — were excessive price increases.”

While the stepback in home prices may have taken some pressure off of government, it’s far from enough for Prime Minister Mark Carney to declare victory against eroded housing affordability.

The market is only back to where it was just before the COVID-19 pandemic, when housing affordability was already broadly viewed as a national crisis, said Mike Moffatt, who leads the University of Ottawa’s Missing Middle Initiative, which seeks to revive Canada’s urban middle class.

“I think it just shows how far out of whack prices are with incomes that prices can go down 15% to 20% and it’s still priced out middle-class families,” he said.

Supply Mismatch

Affordability improvements have been lopsided across Canada, with only half of markets still on an easing trajectory in the second half of 2025, according to RBC. Home prices have fallen the most in British Columbia and Ontario, regions that saw the largest increases in prices following the pandemic.

Even so, homes in major metropolitan centers in those provinces remain exorbitantly expensive, with the share of household income needed to cover housing costs at 88% in Vancouver and 63% in Toronto.

First-time buyers are more hesitant to jump into the real estate market than they were a few years ago, said Toronto real estate agent Alexis D’Souza.

“The questions I get now from first-time homebuyers are very much about, ‘How do you see this going in the next couple of years? Do you see a further decline?’” D’Souza said.

Their hesitation is understandable to D’Souza, who leaped into the housing market with her partner in 2022. They’ve since seen the value of their condo in the city’s popular Liberty Village neighborhood decline.

First-time buyers also aren’t finding what they’re looking for. Despite record inventory of condominiums, most units don’t fit their criteria, D’Souza said. Single-family homes have been selling faster, though at price points many new buyers can’t afford. “Even though there’s a lot of supply, it’s not good supply,” she said.

The conundrum reflects the complicated reality of improved affordability in Canada’s housing market. A recent Canada Mortgage and Housing Corp. report suggested the country has made some progress in growing housing supply, with starts rising 6% in 2025.

But it warned of “major vulnerabilities,” noting “rising unsold inventories suggest today’s supply may not align well with buyers’ needs.” That’s particularly a problem in Toronto and Vancouver.

The report noted that supply of family-sized homes intended for ownership is falling short, with starts well below historical averages in key cities like Toronto, Montreal, Vancouver and Ottawa.

Moffatt said part of the problem is that governments have now become too fixated on boosting supply.

“They’re so focused on the quantity of homes,” Moffatt said. “I think what ultimately matters is: What are the prices and rents of homes? What are those homes? Where are they located?”

Policy Push

The rental market has also loosened, with asking rents falling 3.2% nationally between 2024 and 2025. Slower demand and increased supply have nudged the rental vacancy rate to 3% this year, marking the threshold for a balanced market, according to RBC.

The combination of falling home prices, slower rent increases and relatively low interest rates pushed shelter inflation to its lowest level in five years, increasing at a slower rate than Canada’s 2% inflation target. Yet pressure on governments has hardly faded.

A recent Abacus poll shows only 17% of Canadians believe the federal government is doing enough to address homeownership affordability, while 59% said it was important for governments to take action to improve affordability for the next generation of homebuyers.

Housing affordability took center stage in Canadian politics in the aftermath of the COVID-19 pandemic, as governments pledged to make homebuilding cheaper and less onerous. The U.S. trade war has since sapped attention, but recent policy announcements show governments still see a need to increase supply.

In March, the federal and Ontario governments agreed to lift the sales tax on new homes sold for up to $1 million for all buyers, going further than Ottawa’s initial rebate, which only applies for first-time buyers. Carney and Ontario Premier Doug Ford also announced an agreement to slash development charges — which are levied by municipalities to pay for infrastructure — by up to 50% for three years.

The measures will help Canada avoid a “huge air pocket coming out of the construction pipeline down the road,” when population growth eventually rebounds and pushes up demand again, said RBC’s Hogue.

But if governments want higher rates of home construction, they’ll need to make the math work so that developers are incentivized to build and cities are able to cover their costs.

“These are temporary measures and they don’t really create any kind of long-term structural reform,” Moffatt said. “But what they do is they buy governments time to work on those reforms, figure out how we can build infrastructure and not load all of it onto development charges.”

A 20% Housing Drop Still Leaves Canadians Locked Out of Market by Curtis Heinzl | CMT Canadian Mortgage Trends