CIBC Economists Issue Stark Warning on Canada's Housing Market
New analysis from CIBC economists Benjamin Tal and Katherine Judge reveals that Canada's ongoing housing correction is far more severe than official government statistics suggest, with potentially significant negative consequences for the broader economy. Their report, released this week, indicates that the economic impact of the housing downturn is "not trivial" and extends deeper than surface-level data would indicate.
The Discrepancy Between Official and Real Housing Starts
While Canada Mortgage and Housing Corporation (CMHC) data shows housing starts advancing five percent in 2025 compared to the previous year, CIBC economists argue this official measurement fails to capture the true state of construction activity. The CMHC methodology records housing starts only when foundations are poured, which for large multi-family buildings typically occurs one to two years after a project has actually begun.
"Simply put, today's high-rise housing starts statistics inform us about activity in late 2024, and not about the here and now," Tal and Judge stated in their report.
Drawing on data from Urbanation and Zonda, CIBC estimates that real housing starts in the Greater Toronto Area are actually 50 percent lower than official statistics suggest, while Greater Vancouver Area starts are 30 percent lower. The economists warned that "given the early signs of softness in other parts of the country, the gap between real and headline housing starts statistics is likely to grow."
The Broken Economics of High-Rise Construction
CIBC economists identified fundamental problems in Canada's homebuilding sector, particularly in the high-rise construction space. "The economics of homebuilding, mainly in the high-rise space, is simply broken," they reported, noting that current prices are "still too high to buy and not high enough to build."
This broken economic model creates a vicious cycle where construction becomes increasingly unviable, further exacerbating housing shortages and market instability. The report emphasized that until Canada can reduce "the unsustainably high cost of homebuilding," conditions will continue to deteriorate for both the housing market and the broader economy.
The Wealth Effect and Economic Implications
The housing correction has also impacted what economists call the "wealth effect"—the phenomenon where rising asset values make consumers feel wealthier and spend more, while falling values cause spending contraction. While difficult to quantify precisely, studies have attempted to measure this effect.
The Bank of Canada estimated in one study that for every dollar increase in home values, consumer spending rose by 5.7 percent. More concerning, a New Zealand study found that the housing wealth effect exerts even greater influence when home prices are falling rather than rising, suggesting Canadians are likely to tighten their spending further as housing values decline.
Beyond psychological impacts, the earlier surge in home prices allowed homeowners to borrow more against their properties' increased value. Now, with prices falling and loan-to-value ratios rising, many Canadians are finding it increasingly difficult to access home equity, further constraining consumer spending.
Broader Economic Consequences
With housing representing a larger portion of Canada's GDP than in most other G7 countries, the sector's struggles have outsized implications for the national economy. CIBC economists concluded that the decline in homebuilding and falling home prices have "clear negative" implications for economic growth.
"It's likely to get worse before it gets better," they warned, noting that the housing market's troubles extend beyond construction statistics to affect consumer confidence, spending patterns, and overall economic stability.
The report serves as a sobering assessment of Canada's housing market challenges, suggesting that official statistics may be masking the true severity of the situation and that economic repercussions could be more substantial than previously anticipated.
