Is Canada’s Housing Correction Entering a “Second Phase”?
Canada’s Housing Correction
For much of 2025, the prevailing narrative in Canadian real estate was one of cautious optimism—a belief that the market had hit bottom and stabilization was imminent. However, fresh data released by the Canadian Real Estate Association (CREA) to close out the year suggests that optimism may have been premature.
According to recent analysis, Canada’s housing correction may not be resolving; instead, it appears to be entering a distinct “second phase” characterized by renewed downward pressure on prices.
Here is a breakdown of the critical data defining the current market landscape as we head further into 2026, and what it means for buyers and sellers.
The Hard Numbers: Where We Stood at the End of 2025
The data from December 2025 paints a clear picture of a market still searching for a floor. Rather than leveling off, national home prices continued their downward trajectory.
Here are the key figures from the latest CREA report:
- The Benchmark Price continues to fall: The national benchmark price fell 0.7% in December alone. That represents a $4,800 drop in a single month, bringing the national benchmark to $660,300.
- Year-Over-Year Decline: Prices ended 2025 down 4.0% compared to the year prior, a loss of approximately $27,400 for the average property.
- The Peak-to-Trough Reality: Perhaps most staggeringly, national prices are now down 21.6% from the dizzying peak of early 2022. That is a total value erasure of $181,600 from the average peak price.
- Consistent Negative Momentum: December marked the 7th straight month of price declines, indicating a sustained trend rather than a seasonal blip.
Why a “Second Phase”? The Supply/Demand Imbalance
Prices falling is one thing, but the underlying mechanics dictate why they are falling. The argument for a “second phase” of the correction stems from a troubling shift in supply and demand dynamics that occurred late in the year.
Typically, December is a quiet month for real estate. However, December 2025 saw one of the largest late-year surges in new listings in years. Sellers rushed to market just as buyers pulled back.
Despite Canada’s rapidly growing population, sales remain historically weak, sitting below levels seen in 2019.
The combination is clear: Falling prices + Weak buyer demand + Surging supply = Renewed downside pressure.
This suggests that instead of stabilizing, the market imbalance is widening, fuelling this next leg of the downturn.
What This Means for You
For Buyers: The “fear of missing out” (FOMO) that drove the market years ago is completely gone. Patience is currently a viable strategy. With inventory rising and prices continuing a seven-month slide, buyers have more negotiating power and time to perform due diligence than they have had in years. The “second phase” may offer better entry points for those who have been sitting on the sidelines with cash in hand.
For Sellers: The data is a stark reality check. The pricing strategies of 2022, or even early 2024, no longer apply. With listing inventory surging, competition among sellers is fierce. To sell in this environment, pricing must be aggressive and reflect the current reality of a market where buyers are hesitant and have plenty of options.
Looking Ahead
As 2026 begins, the data suggests the Canadian housing market has not yet found its footing. Until affordability improves significantly or demand returns to absorb the growing number of listings, the path of least resistance for prices remains downwards.
Housing Correction FAQs
Contact us to receive a custom market analysis for your specific neighbourhood to see if it is bucking the national trend.
What does “Second Phase” actually mean?
The “First Phase” of the correction was largely driven by the initial shock of rapidly rising interest rates. The “Second Phase” refers to the current trend where prices are falling due to a fundamental mismatch in supply and demand: inventory is surging (more people selling) while sales remain weak (fewer people buying). This suggests the market isn’t just “adjusting” to rates anymore; it is struggling under the weight of excess supply.
How much value has the average home lost since the peak?
According to the latest data, the national benchmark price is down 21.6% from the market peak in early 2022. In dollar terms, that represents a loss of approximately $181,600 for the average Canadian property.
How much value has the average home lost since the peak?
According to the latest data, the national benchmark price is down 21.6% from the market peak in early 2022. In dollar terms, that represents a loss of approximately $181,600 for the average Canadian property.
Why are prices falling if Canada’s population is growing?
This is one of the most confusing aspects of the current market. While Canada has a much larger population than it did in 2019, sales volumes are actually lower than 2019 levels. This indicates that while there are more people, affordability has hit a wall—newcomers and residents alike simply cannot afford to buy at current price/rate levels, rendering the population growth temporarily ineffective at supporting prices.
Is the market stabilizing?
No. The data explicitly states that “instead of stabilizing,” the combination of falling prices, weak demand, and rising supply points to renewed downside pressure. With December marking the 7th straight month of declines, the trend is currently pointing down, not flat.
Should I sell my home right now?
Selling in this environment requires a very specific strategy. With one of the largest “late-year listing surges” in years, you are facing more competition than usual for this time of year. If you need to sell, you cannot price based on what your neighbor got six months ago; you must price aggressively to stand out in a market where buyers are hesitant and have plenty of choices.
