CIBC is warning that cracks forming in the housing market will weigh on the economy as construction flags and homeowners keep a tighter grip on their wallets.
The bank said in a new report Wednesday that the housing market is too soft to encourage builders to break ground on new homes at the pace needed to lift the economy and deliver a long overdue supply injection.
"I think that we are in the early stages of this correction when it comes to the impact on the economy," said CIBC deputy chief economist Benjamin Tal in an interview.
Housing makes up a significant portion of Canada's economy, and Tal said the run-up in prices and heightened real estate investment over the past two decades have only increased its weight on gross domestic product.
The Canada Real Estate Association expects home sales to climb 5.1 per cent this year after trade uncertainty drove a market slowdown in 2025.
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Home prices soared thanks to ultra-low interest rates during the pandemic, but have more recently fallen as economic uncertainty sidelined many would-be buyers. The slowdown has been particularly pronounced in the condo market.
On a direct basis, lower property values can discourage building activity if developers don't see a clear path to profit.
"The way to describe the housing market at this point is that houses are still too expensive to buy, not expensive enough to build," Tal said. "So the market is, in a way, broken."
The Canada Mortgage and Housing Corp. said last month that housing starts rose 5.6 per cent in 2025, but Tal argued those figures are masking weak building activity.
CMHC counts a housing start as the point at which concrete has been poured over the entire footing of a building. The agency says this point is used as the marker of construction beginning because it's an indication firms are moving past the planning and excavation phase.
But Tal said this means starts are actually counted with a significant lag, particularly for large multi-family projects where foundation work can take well over a year before concrete hits dirt.
"The housing starts that you're seeing now reflect what happened in October of 2024 as opposed to what's happening now," he said.
The CIBC report estimates that construction underway in hard-hit markets like the Greater Toronto and Vancouver areas could be as much as 50 per cent and 30 per cent lower, respectively, than current figures suggest.
Falling property values in some parts of the country will also weigh on Canadians' perceptions of their own wealth, which Tal said will push more households to save rather than spend.
The report also notes that when prices are rising, owners are able to more confidently borrow against the value of their home. But when prices are falling or stagnating, owners facing a higher loan-to-value ratio on their mortgage will find it more difficult to tap home equity for additional loans like a line of credit.
Both of those factors will limit homeowners' abilities to spend more and, by extension, support the economy, CIBC argues.
Lower home prices could, meanwhile, be a boon for first-time buyers attempting to break into the housing market this year. The report noted that more entry-level buyers could help to offset some of the drop-off in spending across the economy.
But Tal also warned falling values are not a long-term solution for affordability in the housing market.
He said the cost of building a home must fall rapidly to restore the business case for new construction in Canada.
Tal said the federal government's measure last year to offer a GST rebate on some newly built homes was a step in the right direction, but added that municipalities must move faster to slash high development charges that drive up the final cost of a unit.
"The reality is, quite frankly, we know what to do. There have been many committees, many research reports," he said.
"It's time not for research. It is not time for reports anymore. It's time for action."
This report by The Canadian Press was first published Feb. 18, 2026.
