TORONTO – A new report says Ontario’s housing market is expected to improve “modestly” next year as favourable economic conditions help push buyers off the sidelines, though higher borrowing costs could dull the extent of the rebound.
Desjardins senior economist Kari Norman said the province’s housing sector “is in the midst of a striking contradiction.” Her report called the market “weak” despite improved affordability, greater buyer choice and easing rental conditions.
The forecast predicts existing home sales will rise nearly five per cent in 2027 compared with this year, driven by lower prices, rising disposable incomes, policy supports for first‑time buyers and some release of pent‑up demand.
But activity would still be well below long‑term norms, the report noted, while balanced market conditions should lead to average price growth of 2.4 per cent next year.
The analysis said the interest rate backdrop will likely remain challenging.
“Home prices are down and at the same time, over the last several years, household income has risen,” Norman said in an interview.
“On the other hand, interest rates went up steeply coming out of the pandemic and they have come down, but not to the levels that we saw … early in the pandemic when interest rates were rock-bottom levels.”
Norman said she expects two near-term rate hikes by the Bank of Canada, including later this month when the central bank is set to release its next rate decision. The bank’s key policy rate has been set at 2.25 per cent since October 2025.
Rate hikes could limit affordability gains from recent home price declines and rising disposable incomes, Norman said.
“That feeds directly into variable rate mortgages,” she said.
“Bond rates have already started to rise and that has had an impact on fixed mortgage rates and also on the cost to developers who need, of course, to borrow money in order to have the financing to break ground on projects.”
The report projected housing starts in Ontario to rise around six per cent to nearly 65,000 units in 2027 — still more than 30 per cent below levels seen in 2021 and 2022. The primary driver will be rental construction, while condominium starts are also expected to edge higher.
The report said ground‑oriented housing starts should ease modestly in 2027, remaining historically weak.
With new condo and purpose‑built rental completions adding supply at a time when population growth is likely to be weak, the report said rental conditions should remain relatively balanced. It projects average rents to increase around 1.4 per cent as long‑term tenants could face hikes despite asking rents declining.
Norman highlighted two main factors carrying over from 2026 that could threaten her outlook for next year. She said risks to her forecast include lingering trade tensions between Canada and the United States, along with inflationary pressures tied to higher global oil prices due to war in the Middle East.
Both factors could drive costs higher across various sectors, raising inflation even further and prompting increased borrowing costs.
“And as interest rates go up, it becomes more expensive for both developers to finance new construction and for prospective homebuyers to buy homes,” she said.
