Has Ontario Real Estate Bottomed? Why the Next Recovery May Already Be Starting

After several years of elevated interest rates, declining affordability, weak sales and growing inventory, Ontario’s real estate market is showing increasingly credible signs that the worst of the correction may be behind it.

That does not mean every home, condominium or Ontario community has reached its final price bottom. Housing markets rarely turn at the same moment. Sales volumes ordinarily recover first. Inventory then declines, negotiating conditions become more balanced and prices follow.

That sequence appears to be starting in Ontario.

The more accurate conclusion is not that Ontario is immediately returning to the rapid price escalation of the pandemic years. It is that the province may be moving from a prolonged correction into a new phase of stabilization, normalization and, eventually, renewed price growth.

Ontario Sales Are Beginning to Turn Before Prices

In June 2026, Ontario recorded 18,051 residential sales through MLS® systems, an increase of 5.5% from June 2025 and the highest monthly total since May 2024. Sales were also 2.3% above the five-year average for the month, although they remained 12.3% below the 10-year average.

The supply picture also began to tighten:

• New listings declined by 5.5% year over year;
• Active listings declined by 5.1%; and
• Months of inventory fell from 4.7 months in June 2025 to 4.2 months in June 2026.

Nevertheless, Ontario still had substantially more inventory than normal. Active listings remained 23.6% above the five-year average and 41.6% above the 10-year average. This helps explain why stronger sales have not yet translated into broad price increases.

Ontario’s composite benchmark price was $753,300 in June 2026, down 4.6% from the previous year. The decline varied significantly by property type:

• Single-family homes: down 4.2%;
• Townhouses and row homes: down 6.6%; and
• Apartments: down 8%.

These numbers illustrate an important distinction. Ontario may be experiencing a bottom in market activity before reaching a province-wide bottom in prices.

The Toronto region is displaying a similar pattern. The GTA recorded 6,770 sales in June 2026, while the average selling price of $1,058,658 remained 3.9% below June 2025. Rising sales combined with lower prices are consistent with the early stage of a recovery, when buyers return but still have sufficient inventory and bargaining power to resist bidding prices higher.

Why Sales Normally Recover First

A housing-market recovery is a process, not an announcement.

Potential purchasers who postponed moving because of interest rates or economic uncertainty do not all return at once. Initially, transactions increase because prices have adjusted, sellers have become more realistic and some buyers can no longer defer life events such as marriage, children, employment changes, separation, retirement or relocation.

As sales rise, good properties begin selling more quickly. Conditional offers become less common. Price reductions become smaller. Inventory is gradually absorbed. Only after that process has continued for a sufficient period do benchmark and average prices begin to rise.

CREA’s July 2026 forecast reflects this sequence. It identified Ontario as the province leading the recovery that began in May and forecast that Ontario would be the only province to record an annual increase in sales during 2026. At the same time, CREA expects Ontario’s average price to decline by less than 1% for the full year.

CMHC’s forecast is more conservative but points in the same general direction. CMHC expects Ontario prices to remain under pressure in 2026, particularly in expensive urban markets with elevated inventory, before beginning to recover in 2027. It also expects increasing demand, declining inventory and fewer new completions to support price growth in 2027 and 2028.

The reasonable conclusion is that Ontario is not necessarily at the beginning of another speculative boom. It may, however, be at the beginning of a transaction recovery that can establish the foundation for future price appreciation.

Interest Rates Have Moved From a Headwind to a Stabilizing Force

The Bank of Canada’s overnight rate has remained at 2.25% since October 2025, following reductions from 2.75% earlier that year. As of July 15, 2026, the Bank had maintained the rate at 2.25% through five consecutive decisions.

This is important because housing demand depends not only on property prices, but also on monthly carrying costs and the amount a purchaser can borrow.

Lower short-term rates directly benefit variable-rate borrowers and lines of credit. They also improve consumer confidence by reducing the risk of another immediate and substantial payment shock.

Fixed mortgage rates do not necessarily decline in lockstep with the Bank of Canada’s overnight rate because they are influenced by government bond yields and broader credit markets. Nevertheless, the change from a rising-rate environment to a relatively stable-rate environment gives purchasers and lenders greater certainty.

The federal mortgage reforms that took effect on December 15, 2024 also improved access to financing at the margin. The insured mortgage price cap was increased from $1 million to $1.5 million, while 30-year insured amortizations became available to all first-time buyers and all purchasers of newly constructed homes.

At the same time, Canada’s mortgage stress test remains restrictive. Borrowers generally must qualify at the greater of their contractual mortgage rate plus two percentage points or 5.25%. OSFI has, however, removed the requirement to reapply the stress test to certain uninsured straight-switch renewals where neither the loan amount nor amortization is increased.

These changes do not make Ontario housing inexpensive. They do make financing more predictable and, for some purchasers, more accessible than it was during the peak of the rate-tightening cycle.

The Mortgage Renewal Wave Is a Risk—but Not Necessarily a Market-Breaking Event

A significant number of homeowners continue to renew mortgages that were originally obtained at substantially lower rates. This will increase payments for many households and may cause some financially strained owners or investors to sell.

CMHC reports that mortgage arrears are expected to rise moderately through late 2026. Delinquencies have increased particularly in Ontario and the Toronto Census Metropolitan Area, although national mortgage arrears remain low by historical standards and the overall mortgage system remains stable.

This is a legitimate risk to the market recovery. It is particularly relevant to:

• Highly leveraged condominium investors;
• Owners facing negative monthly cash flow;
• Borrowers with unsecured debt in addition to their mortgages;
• Owners who purchased or refinanced near the market peak; and
• Households affected by unemployment or reduced income.

However, a mortgage renewal is not automatically a forced sale. Many borrowers have increased their incomes, reduced other expenses, extended amortizations, refinanced, added rental income or accumulated equity. Unless the economy experiences a much more severe employment shock, renewals are more likely to create selective and localized selling pressure than a province-wide wave of distressed sales.

Ontario’s Economy Remains the Most Important Near-Term Risk

Housing cannot fully recover without employment and income confidence.

Ontario’s 2026 Budget projects real economic growth of only 1% in 2026, followed by 1.7% in 2027 and 1.8% in 2028. Employment growth is forecast at only 0.5% in 2026. Ontario’s unemployment rate was 7% in June 2026.

Trade uncertainty, manufacturing exposure, geopolitical instability and slower business investment remain potential headwinds. Communities that are highly dependent on automotive production, manufacturing, logistics or trade-sensitive employment may recover more slowly if employers remain cautious.

Conversely, Ontario retains considerable structural strengths:

• Toronto remains Canada’s primary financial and corporate centre;
• Ottawa benefits from government, technology and professional employment;
• Waterloo Region retains a major technology and education ecosystem;
• Hamilton and the western Greater Golden Horseshoe benefit from population decentralization and transportation connections;
• Southwestern Ontario is receiving major automotive, battery, advanced-manufacturing and infrastructure investment; and
• The province continues to attract domestic and international capital.

Ontario’s economy therefore does not need to become exceptionally strong for housing to improve. It principally needs to avoid a major recession and progress from uncertainty toward moderate employment and income growth.

Immigration Is Slowing, But Ontario’s Demographic Demand Has Not Disappeared

The federal government is deliberately slowing population growth after the exceptional increase in temporary residents, international students and workers experienced earlier in the decade.

The 2026–2028 Immigration Levels Plan targets 385,000 new temporary-resident arrivals in 2026 and 370,000 in each of 2027 and 2028. The federal government intends to reduce temporary residents to less than 5% of Canada’s population by the end of 2027. Permanent-resident admissions are nevertheless targeted to remain at 380,000 annually from 2026 through 2028, with the economic category rising to 64% of admissions in 2027 and 2028.

Ontario’s estimated population declined from approximately 16.14 million on January 1, 2026 to approximately 16.10 million on April 1, 2026. This near-term demographic slowdown will reduce some of the immediate pressure on rental housing and entry-level ownership demand.

But population growth is only one part of housing demand.

Household formation also occurs when young adults leave their parents’ homes, roommates separate into different households, couples form families, newcomers already living in Canada purchase homes, and existing households move to properties that better meet their needs.

CMHC expects household formation to remain relatively strong despite slower population growth because lower prices and higher inventory can allow households that previously deferred moving to obtain suitable housing.

Ontario therefore faces a short-term demographic slowdown, not the disappearance of long-term housing demand. A large population, delayed household formation, aging owners, younger families and continued permanent immigration will continue to produce transactions even during periods of slower aggregate population growth.

Government Policy Is Becoming More Supportive of Construction and Home Purchases

Housing affordability and construction have become central political issues for the federal government, Ontario and municipal governments.

In March 2026, the federal and Ontario governments announced a housing partnership intended to reduce municipal development charges by as much as 50% for three years in participating municipalities covering approximately 80% of Ontario’s population. The governments committed a combined $8.8 billion over 10 years toward housing-enabling infrastructure.

The announced package also provides enhanced HST relief for qualifying new Ontario homes. For eligible agreements signed between April 1, 2026 and March 31, 2027, the full 13% HST is to be removed on qualifying new homes valued up to $1 million, with up to $130,000 of relief maintained through $1.5 million and phased relief above that amount. The Ontario government estimates that the measure could support approximately 8,000 additional housing starts, although that is a government projection rather than a guaranteed outcome.

Ontario’s 2026 Budget also temporarily enhances the provincial portion of the new housing and new residential rental property rebates for qualifying homes.

Bill 98, the Building Homes and Improving Transportation Infrastructure Act, 2026, received Royal Assent on June 2, 2026. Among other matters, it amended the Planning Act, City of Toronto Act, 2006, Building Code Act, 1992 and Municipal Act, 2001, including measures intended to streamline and standardize municipal official plans and land-use designations.

These measures will not immediately raise resale prices. Development approvals, infrastructure construction and new housing projects take years. They can, however, improve project economics, revive some stalled developments and restore confidence among builders, lenders and purchasers.

Today’s Construction Collapse May Become Tomorrow’s Supply Shortage

One of the strongest medium-term arguments for an Ontario housing recovery is not current demand. It is the lack of future supply.

CMHC expects Ontario housing starts to fall to nearly two-decade lows in 2026, driven largely by exceptionally weak condominium pre-construction sales. Ontario starts are expected to decline for a fifth consecutive year, with the largest reductions concentrated in the GTA, Ottawa and Kitchener–Cambridge–Waterloo.

Developers generally cannot obtain construction financing for a condominium project without achieving substantial pre-sale thresholds. When investors and end-users stop purchasing pre-construction units, projects are delayed, redesigned, converted to rental or cancelled.

That does not immediately reduce supply because units from projects launched several years earlier may still be completed. It reduces the number of homes that will be delivered several years from now.

This creates a potentially powerful cycle:

1. Current resale and newly completed inventory keeps prices subdued.
2. Weak prices and poor pre-sales cause new projects to be cancelled or postponed.
3. Housing starts decline.
4. Existing inventory is gradually absorbed.
5. Demand eventually improves as rates, employment and confidence stabilize.
6. Fewer new completions are available when buyers return.
7. Prices begin rising because supply cannot respond quickly.

CMHC expects fewer new completions, lower inventory and stronger demand to contribute to Ontario price growth in 2027 and 2028.

Public policy may increase construction over the longer term, but it cannot instantly replace the projects that failed to launch during the present downturn.

What Happens if the Foreign Buyer Ban Expires?

The federal prohibition on the purchase of certain residential property by non-Canadians is currently scheduled to expire on January 1, 2027, unless it is extended or replaced.

The expiry of the federal prohibition could improve sentiment and increase foreign participation in selected markets, particularly:

• Downtown Toronto condominiums;
• Luxury homes;
• Properties purchased for children studying or working in Canada;
• International executive relocations; and
• Certain redevelopment or investment opportunities.

However, the expiry of the federal ban would not amount to a complete reopening of Ontario housing to foreign purchasers.

Ontario’s 25% Non-Resident Speculation Tax continues to apply province-wide to affected residential purchases.

Toronto also imposes a separate 10% Municipal Non-Resident Speculation Tax, in addition to provincial and municipal land transfer taxes.

A foreign purchaser of an affected Toronto residential property may therefore face very substantial transaction taxes even if the federal prohibition expires.

Accordingly, the end of the federal ban could add liquidity and demand at the margin, but it is unlikely by itself to cause a province-wide price surge. Its impact would probably be greatest in selected Toronto condominium and luxury markets and less material in communities driven primarily by local employment and family demand.

Ontario Is Not One Real Estate Market

Any forecast must distinguish among regions and property types.

Established low-rise communities

Detached, semi-detached and family-sized townhomes in established neighbourhoods are likely to stabilize first. These properties compete with a limited supply of land, are difficult to reproduce and appeal to end-users rather than being dependent primarily on investor demand.

Condominium apartments

The condominium market will likely take longer to recover. It continues to face:

• Elevated investor listings;
• Units completing from projects sold several years ago;
• Mortgage renewal pressure;
• Negative cash flow at current interest rates;
• Competition from new purpose-built rental supply;
• Assignment sales; and
• Reduced international-student and temporary-resident demand.

Ontario’s apartment benchmark declined 8% year over year in June 2026, materially more than the decline in single-family homes.

Well-located, larger or genuinely differentiated condominium units may recover sooner. Small, interchangeable investor units in buildings with high carrying costs may remain under pressure for longer.

The GTA and Greater Golden Horseshoe

The GTA contains both Ontario’s greatest inventory challenges and its strongest long-term demand drivers. CMHC expects GTA weakness to weigh on Ontario’s 2026 average price, but also expects the GTA to lead renewed price growth as inventory declines in 2027 and 2028.

Hamilton, Burlington, Waterloo Region, London, Niagara and other connected markets will be influenced by local employment, commuting patterns, relative affordability and migration from more expensive GTA communities.

Ottawa and other regional centres

Ottawa, Kingston, parts of Northern Ontario and other regional markets may follow different cycles because of government employment, universities, healthcare, defence, mining, manufacturing or other local industries. Provincial averages should never be treated as a substitute for neighbourhood-level analysis.

What Could Delay the Recovery?

The recovery thesis is credible, but it is not risk-free.

The principal downside risks include:

• A material Ontario recession;
• Significant employment losses;
• Renewed inflation and higher mortgage rates;
• Persistently high government bond yields;
• Greater-than-expected mortgage renewal distress;
• Further reductions in immigration or population growth;
• Continued investor selling;
• Excess condominium completions;
• Trade disruptions affecting Ontario manufacturing; and
• Governments failing to implement housing and infrastructure reforms efficiently.

The principal upside risks include:

• Lower mortgage rates;
• Faster improvement in employment and consumer confidence;
• More rapid absorption of active listings;
• Successful implementation of development-charge and HST relief;
• The scheduled expiry of the foreign buyer prohibition;
• Stronger household formation; and
• A sharper shortage of future housing completions than currently anticipated.

The Most Likely Ontario Housing Scenario

The available evidence points to a gradual and uneven recovery rather than a sudden return to speculative price escalation.

For the remainder of 2026, sales are likely to improve while prices remain relatively flat or modestly lower on a year-over-year basis. Desirable low-rise properties may stabilize or appreciate before the broader provincial statistics turn positive. Condominium apartments may continue to lag.

During 2027, stronger sales, more stable financing conditions and declining inventory could produce broader price growth. The magnitude will depend heavily on employment, mortgage rates and the number of owners who list properties following renewal.

By 2028, the consequences of several years of weak housing starts and failed condominium launches may become increasingly visible. If demand has normalized by then, the shortage of new completions could place renewed upward pressure on both prices and rents.

The central point is that purchasers and sellers should not wait for a headline declaring that the market has recovered. By the time annual price statistics clearly confirm the turn, transaction volumes may already be substantially higher and the negotiating advantages available during the downturn may have diminished.

Legal Planning Matters in a Changing Market

A recovering market creates both opportunities and risks.

Purchasers should carefully address financing, appraisal, inspection, status certificate, title, zoning, development, HST and due-diligence conditions. Sellers should ensure that representations, disclosure obligations, deposits, completion arrangements and remedies are properly documented.

Developers and investors must also consider changing planning rules, development charges, HST rebates, pre-construction disclosure requirements, mortgage financing, construction contracts, leasing arrangements and the tax implications of acquiring or disposing of property.

At Levy Zavet and Levilex Lawyers, our real estate, development, financing, corporate and litigation practices assist purchasers, sellers, builders, developers, investors, lenders and property owners throughout the complete life cycle of an Ontario real estate transaction.

The Ontario market appears to be moving beyond its correction and into a period of stabilization. The recovery will not occur evenly or without setbacks. Nevertheless, improving sales, stable interest rates, pent-up household demand, supportive government policy and a rapidly shrinking future construction pipeline provide a credible foundation for renewed activity and eventual price growth.

Disclaimer: This article is provided for general information only and does not constitute legal, tax, mortgage, investment or financial advice. Real estate conditions vary significantly by municipality, neighbourhood, property type and individual circumstances. Professional advice should be obtained before entering into a transaction or making an investment decision.