CoStar Outlines Three Defining Trends for Canada’s Real Estate Market in 2026
CoStar, the global leader in online real estate marketplaces, property data, and market analytics, has released its outlook for Canada’s real estate market in 2026, highlighting three major trends expected to shape performance across property sectors. While Canada’s economy demonstrated resilience in 2025, CoStar’s analysis suggests that structural economic changes, housing supply imbalances, and shifting capital market conditions will create a more challenging environment for real estate in the year ahead.
According to CoStar, the Canadian market is entering a period of transition marked by softer demand fundamentals, ongoing affordability pressures, and an evolving investment landscape that will test both developers and investors.
An Economy Undergoing Structural Change
Canada’s economy exceeded expectations in 2025, supported by solid consumer spending and relative stability across key sectors. This strength helped the country avoid a recession despite elevated interest rates and lingering inflation. However, CoStar’s outlook for 2026 is more cautious, pointing to underlying structural shifts that could weigh on economic momentum.
One of the most significant factors is a projected slowdown in population growth. New federal government policies restricting immigration for non-permanent residents are expected to reduce the pace of population expansion, which has been a critical driver of housing demand in recent years. With fewer new residents entering the country, demand for housing and certain household-driven property types may weaken.
At the same time, Canadian households continue to face considerable affordability challenges. High housing costs, rising living expenses, and lingering debt burdens have eroded purchasing power for many consumers. While wage growth has provided some relief, it has not been sufficient to fully offset elevated costs.
As a result, CoStar expects domestic demand to struggle to match the strong performance seen in 2025. Property sectors that rely heavily on household formation, discretionary spending, and consumer confidence could experience softer conditions in 2026, particularly in markets where affordability constraints are most acute.
Housing Supply Pressures and a Condo Overhang
Another key trend shaping the outlook is the growing imbalance in Canada’s housing supply, particularly within the condominium market. Over the past several years, for-sale condo inventory has increased steadily, leading to a supply overhang in several major urban markets. CoStar estimates that this excess inventory could take six to nine years to fully absorb, depending on local demand conditions and economic performance.
In response to shifting market dynamics, many developers have redirected their focus away from condos and toward purpose-built rental apartments. This shift has resulted in the highest level of rental apartment construction Canada has seen in the past half-century. While this surge in development addresses long-term rental shortages, it has also introduced new challenges.
High construction and financing costs have pushed average rents for newly delivered rental units to elevated levels. In many cases, rents are out of reach for a significant portion of the population, leading to higher vacancy rates in recently completed buildings. Affordability constraints have limited demand, even as supply continues to grow.
CoStar expects average home prices and apartment rents to continue declining in the near term as markets work through these imbalances. A more stable pricing environment is unlikely to return until at least 2027, once excess supply is absorbed and affordability improves. In the interim, developers may remain cautious, and project timelines could be delayed as market conditions reset.
Capital Markets Adjust to a New Reality
The third major trend identified by CoStar centers on the evolving capital markets environment. Despite recent central bank rate cuts, long-term interest rates and mortgage rates have remained elevated. Persistent inflationary pressures and rising government debt levels have prevented borrowing costs from falling as quickly as many market participants had hoped.
As a result, capital market conditions are no longer providing the strong tailwind that supported real estate activity in prior cycles. Higher financing costs continue to weigh on deal volume, development feasibility, and asset valuations. CoStar anticipates that distress-driven transactions will become more common in 2026, particularly for land and development assets facing refinancing challenges.
These distressed sales are expected to place downward pressure on pricing and limit any meaningful rebound in overall transaction activity. However, the changing environment is also driving innovation within the real estate capital stack.
New sources of capital—including private real estate investment trusts, family offices, infrastructure funds, and private debt providers—are playing a growing role in bridging the gap between buyer and seller expectations. While this evolution may not immediately restore deal volumes, it could gradually improve liquidity and create new opportunities over the longer term.
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