A tale of two markets.

Canada does not have a housing market. It has at least two, and in 2026 they are moving in opposite directions. Ontario’s average price is 28 per cent below its February 2022 peak and British Columbia’s is 16 per cent below. Over the same stretch, Quebec, Alberta, Saskatchewan and most of Atlantic Canada set new records. Same central bank, same mortgage rules, same bond market.

That is why a national average is close to useless this year. Canada’s August average price, $668,219, was up 0.6 per cent from a year ago. That figure averages Toronto’s 2.7 per cent decline with Calgary’s 5.0 per cent gain and describes neither market.

The markets that corrected are the ones that had run furthest above local incomes. On National Bank’s measure, Toronto buyers needed 90.9 per cent of the median household income to carry the median home at the Q4 2023 peak. Today they need 68.3 per cent, still 13.8 points above the city’s long-run average. Toronto spent roughly two decades with the payment between about 40 and 50 per cent of income. That range is the channel prices can drift back toward, through some mix of flat prices, rising incomes and eventually lower rates.

The condo market shows the same thing from another angle. Owning a representative Toronto two-bedroom now costs about $404 a month more than renting one, a 13.9 per cent premium, down from roughly 55 per cent in 2022. Before 2018, owning was usually cheaper than renting. When the premium returns to its long-run level (about 7 per cent, read from NBF’s chart), buying stops being a bet on appreciation and becomes a housing decision again.

Volumes tell a less comfortable story for the affordable provinces. National sales from January to August were the lowest since 2003, and Alberta’s were down 10.2 per cent on the year, more than four times Ontario’s 2.4 per cent decline. The Prairies are still busier than in 2019, but they are cooling from records as listings rebuild. Market balance is converging from both ends: Ontario’s seasonally adjusted sales-to-new-listings ratio has risen toward balanced, while Quebec’s has fallen out of seller’s territory.

As the price falls, fewer owners are willing to sell at it and more buyers are willing to buy. That is visible in the listings data. Toronto new listings are down 14.1 per cent year over year, while Toronto’s January-to-August sales are flat on 2025 after three years of decline. Supply is contracting faster than demand, which is how a market finds a floor. It is not yet a recovery. Toronto is still a buyer’s market on CREA’s bands; it is simply a tighter one than a year ago.

New construction is where policy is doing the most visible work. The enhanced HST rebate, which removes the sales tax on new homes below $1 million, took Ontario new-home sales up 130 per cent year over year in the second quarter. In the GTA, single-family new-home sales have run above their 10-year average for five straight months. Part of that is base effect, because 2025 was a record low. But builders are now selling low-rise homes at a normal pace for the first time in years.

The same policy is scrambling the price indexes. The GTA single-family benchmark fell 10.7 per cent in a single month in June, and one outlet called it a crash. It is a list-price index, gross of the rebate, with no adjustment for size. Builders are reshaping product to fit under the $1 million cap. Floorplan-level data shows what is really happening: cuts outnumber raises almost three to one. Most “flat” prices are cheaper once the rebate is counted. That is price discovery, and it is moving in buyers’ favour. Condos are the exception: the rebate’s timing rules keep most high-rise projects out, and condo sales remain 78 per cent below normal.

The Bank of Canada has held the overnight rate at 2.25 per cent since late October 2025. The five-year Government of Canada yield, which prices five-year fixed mortgages and insured apartment loans, has risen from about 2.7 per cent to 3.57 per cent. Oil is above US$100 again and diesel refining margins are at a record monthly high. Those are inflation pressures, and inflation expectations are what longer bond yields price.

That matters most for the one segment still building. Purpose-built rental made up 58 per cent of starts by intended market this year, while condo starts fell to their lowest January-to-August total since 2009. Rental is financed with CMHC MLI Select at up to 95 per cent loan-to-cost over 50 years, priced off the Canada Mortgage Bond. At that leverage and amortization, a 90-basis-point move in the five-year yield is the difference between a project that pencils and one that does not.

Right now population is falling while starts are still running near 230,000 a year: excess supply of new homes relative to new people, which is part of why rents and condo prices are soft. That flips. The official projection has population growth negative through 2026 and turning positive during 2027. The PBO expects about 0.8 per cent a year in the medium term. CMHC expects starts to fall to 211,900 by 2028.

The flow arithmetic moves back toward demand, though on its own it does not return to the 2023 extreme. What tips it further is the stock: years of pent-up household formation. National Bank estimates 3.5 people per household created in 2025, against a historical norm of about 2. That is young adults and roommates who will form households when they can.

The labour market has improved: unemployment is 6.4 per cent, down from 7.1 per cent a year ago. Mortgage arrears have not turned. They reached 0.29 per cent in May, the highest since 2016, and 0.28 per cent in June. That fits the Bank of Canada’s February research: households lean on credit cards and lines of credit about two years before they miss a mortgage payment. Those early signals are still flashing, especially for Ontario homeowners.

The honest read is “concentrated, not over.” The Bank’s Financial Stability Report says overall delinquency has stabilized. Equifax says the growth rate slowed in Q2. But the pocket that matters for housing, 2022–23 borrowers in the GTA, is still deteriorating.

The trade war falls hardest on Ontario’s manufacturing corridor: eight of the fourteen most tariff-exposed cities in the Business Data Lab index are in Ontario. Meanwhile TD, RBC and Scotiabank all have Alberta, Saskatchewan and Newfoundland and Labrador growing faster than Ontario and British Columbia this year and next, on energy and resource projects. Growth, and the jobs and migration that follow it, is drifting toward the markets that are still affordable.