**Mike Moffatt, economist and founding director of the Missing Middle Initiative at the University of Ottawa.**

Governments are trying to balance two objectives in Canada’s faltering housing market that are “on the face of it, inherently contradictory,” says Mike Moffatt, economist and founding director of the Missing Middle Initiative at the University of Ottawa.

“We do need prices to fall,” he told The Financial Post. “But we’ve seen over the last three years what happens when prices continue falling. It basically just breaks the economics for builders by eliminating the incentive to build. That creates a challenging situation where we want low prices, but we also want to create the conditions for builders to build more.”

Moffatt warned that new home sales have “basically evaporated” in Ontario and British Columbia as prices soften, and said the slowdown could deepen the long-term supply shortage. “If we go through a period where nothing gets built and then the economy improves, we’re not going to have a lot of inventory once people are ready to buy again,” he said.

The downturn is already visible in the country’s most expensive markets. Vancouver realtor Holly Calderwood, who has worked in luxury real estate for two decades, told the Financial Post she has only seen conditions this bad “a handful of times,” including the 2008–09 financial crisis. “A lot of foreclosures and then you just see the price dropping,” she said. “Sometimes people are losing a couple of million.”

Foreclosures, falling prices, and slumping condo sales have become hallmarks of the slowdown. Condo apartment sales are down 75 per cent in the Greater Toronto Area and 37 per cent in Vancouver since the 2022 peak, according to Canada Mortgage and Housing Corp. Some projects have entered receivership or been cancelled, while suburbs such as Halton Hills have recorded price declines of up to 50% from their highs.

Economists say higher borrowing costs and slower immigration have sapped demand, while affordability has collapsed. “We have had a structural shift in interest rates,” Charles St-Arnaud, chief economist at Alberta Central told the Financial Post. “That changed the affordability equation quite significantly for many markets.”

The sector’s weakness poses risks to the wider economy. Housing contributed $143.4 billion to Canada’s GDP last year and supported 1.2 million jobs. “Strong housing starts, strong building construction, have a lot of spillover to the rest of the economy,” St-Arnaud said.

The Bank of Canada has warned in its financial stability report that under a worst-case scenario of trade shocks and job losses, mortgage arrears could rise to levels comparable to the 2008–09 crisis. About 60 per cent of mortgages will renew in 2025 or 2026, with most households facing higher payments.