Home prices in Canada are down just 4% from last year. That sounds like progress if you're a frustrated buyer, but it doesn't feel like much. Not when prices are still sitting 21% below the 2022 peak but nowhere near where they were before the pandemic buying frenzy started.

But here's something most people aren't talking about: in real terms, when you account for inflation, home prices in Canada are basically back to where they were nine years ago.

That's the warning from senior economist Robert Kavcic at a major Canadian bank. And if you're wondering why sales are still so slow despite this erosion in real value, the answer might surprise you. It's not just about affordability anymore.

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The Numbers Look Different When You Account for Inflation

The national average home price across Canada was down 5.6% year-over-year in November 2025 to $819,356. Benchmark prices fell 0.9% month-over-month, extending a downward streak to six consecutive months.

In nominal terms, meaning the sticker price you see, a typical home has fallen just 1.4% annualized over the past three years. Over five years, prices are still up a "modest" 2.2% annualized.

That doesn't sound like a correction. It sounds like stagnation.

But inflation over that same five-year period ran at 3.7% annually. When you adjust for inflation, the real price of homes, what they're actually worth in today's dollars compared to what they could buy you in the past, has been contracting.

"In fact, in real terms, home prices are now roughly unchanged from where they were 9 years ago," Kavcic said.

Think about that. If you bought a home in 2016 for $400,000, and that same home is now worth $650,000, you didn't gain $250,000 in real purchasing power. Inflation ate away at that nominal gain. In terms of what your money can actually buy, you're roughly back where you started.

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Why Prices Stopped Falling

Canadian home prices peaked in February 2022 at $836,300. They corrected sharply, dropping 21% from that record high. But then they stopped. Since the initial shock, prices have been resistant to further declines despite continued pressure from high interest rates and economic uncertainty.

"Canadian home prices continue to drift lower as the market reverts back to income, interest rate and cash flow fundamentals," Kavcic explained.

The key word there is "drift." Not crash. Not plummet. Drift.

Sales remain tepid. In November 2025, 40,389 homes were sold nationally on a seasonally adjusted basis, down 7.6% from a year earlier. That's significantly below historical averages and marks one of the slowest periods in decades.

But despite weak sales, prices aren't collapsing. The national sales-to-new-listings ratio edged up to 52.7%, slightly above the previous month. New listings slowed seasonally, while inventory continued to rebuild modestly, giving buyers more negotiating leverage without tipping conditions decisively in their favor.

Both Ontario and Quebec saw their average home prices reach new all-time highs in November 2025. Greater Toronto Area prices averaged $1,039,458, down 6% year-over-year. Greater Vancouver averaged $1,235,575, down 3.2%. British Columbia's benchmark price fell for the eighth consecutive month.

The correction has been uneven. Some markets have softened considerably. Others have barely budged. But across the board, the pattern is the same: prices fell fast at first, then stabilized.

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The Generation That's Hesitating

Here's where things get interesting. You'd think that with real prices back to 2016 levels, buyers would be flooding the market. Younger millennials and Gen Z, who've been priced out for years, should be jumping at the opportunity.

They're not.

Kavcic suggests this hesitation has less to do with affordability, though that's still a massive barrier, and more to do with something else entirely. A shift in how younger generations view real estate as an investment.

"There is a generation right now realizing that real estate can be a massive wealth creator; but it can also lock in capital and suck up cash flow for prolonged periods," he said. "Hence the lack of urgency of new buyers to get into the market right now, and the lack of investor interest."

This is a fundamental change from how previous generations approached homeownership. Baby boomers and Gen X largely viewed buying a home as a given, an inevitable milestone that would pay off over time. The question wasn't whether to buy, it was when.

Millennials and Gen Z are asking whether at all.

According to recent surveys, 54% of millennials and 41% of Gen Z feel pressure to buy a home. That pressure is on par with societal expectations around marriage and starting a family. But feeling pressure doesn't mean acting on it.

Among those surveyed, 81% of boomers and 74% of Gen X own property in Canada, versus 61% of millennials and just 21% of Gen Z. The ownership rate drops dramatically with each younger cohort.

And here's the kicker: 55% of non-owners are unhappy with not owning a home. They want to own. They just aren't convinced the timing is right or that the trade-offs are worth it.

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The Cash Flow Problem

Part of what's changed is financial literacy. Younger buyers today understand leverage, opportunity cost, and liquidity in ways previous generations didn't need to.

They've watched real estate appreciate dramatically in the 2000s and 2010s. They've also watched it correct. They've seen friends and family become house-rich but cash-poor, unable to afford vacations, renovations, or unexpected expenses because all their money is tied up in mortgage payments and home equity.

Millennials carry a median mortgage debt of $218,000, over 2.5 times their after-tax income of $83,200. By comparison, young boomers carried a median mortgage of $67,800, roughly equal to their after-tax income. That's a fundamentally different debt load, and it changes how you live.

When your mortgage payment, property taxes, insurance, utilities, and maintenance consume 50-60% of your gross income, you don't have much room for anything else. You can't easily change jobs or move cities. You can't start a business or take career risks. You're locked in.

Younger buyers are watching this play out and asking themselves: is this the life I want? Is homeownership worth sacrificing financial flexibility for decades?

For many, the answer is no. Or at least, not yet.

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The Investor Exodus

It's not just first-time buyers who are hesitating. Investors have largely left the market too.

In the 2010s and early 2020s, real estate investment was a no-brainer. Prices went up year after year. Rent covered most or all of your mortgage. Appreciation gave you equity. You could leverage one property to buy another.

Now? Not so much.

Rental yields are compressed. With home prices still elevated relative to rents, the math doesn't work for many investment properties. Positive cash flow is rare. Most investor-owned properties run at a loss every month, counting on appreciation to make up the difference over time.

But appreciation has stalled. And with interest rates higher than they've been in years, carrying costs have exploded. Many investors who bought in 2020-2021 are underwater, not in equity but in monthly cash flow. They're bleeding money every month hoping prices will eventually recover.

New investors looking at these realities are staying on the sidelines. Why tie up capital in an asset that costs you money monthly, appreciates slowly if at all, and locks you into illiquid investment for years?

The lack of investor interest is one reason sales remain weak despite improving affordability metrics.

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What This Actually Means for Buyers

If real prices are back to 2016 levels, does that mean housing is affordable again?

No.

Affordability isn't just about price. It's about income, mortgage rates, and total carrying costs.

In 2016, the Bank of Canada's policy rate was 0.5%. Five-year fixed mortgage rates were around 2.5%. A $400,000 home with a $380,000 mortgage at 2.5% cost roughly $1,700 per month.

In 2026, the policy rate is 2.25%. Five-year fixed mortgage rates are around 3.8-4%. That same $400,000 home, which might now be worth $650,000 in nominal terms, requires a mortgage of $617,500. At 4%, that's $3,250 per month.

Your payment nearly doubled even though the real value of the home stayed flat.

Average household income hasn't kept pace. Median household income for families with a highest earner under 35 was $105,000 in 2024. That sounds decent until you realize that at pre-tax income of $105,000, a $3,250 monthly mortgage payment consumes 37% of gross income before you add property tax, insurance, utilities, and maintenance.

The traditional rule of thumb says housing costs shouldn't exceed 30% of gross income. Most buyers today are blowing past that threshold.

So while real prices have fallen, real affordability hasn't improved proportionally because rates have risen and incomes haven't kept up.

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The Regional Divergence

Not all markets are experiencing the same pressures.

Ontario's housing market continued to cool in November 2025. The average home price fell 1.7% month-over-month to $819,356, leaving prices 5.6% lower year-over-year. That's one of the steepest annual declines nationally. The benchmark price declined 0.9% to $757,400, down 5.2% from last year.

British Columbia's market softened notably too. The average home price declined 1.3% month-over-month to $965,914. The benchmark price fell 0.4% to $901,100, down 5.8% year-over-year. That marked the eighth consecutive monthly decrease in B.C.'s benchmark home price.

Quebec told a different story. Both Quebec City and Montreal saw prices reach new all-time highs in November 2025. The Teranet-National Bank House Price Index showed Quebec City up 13.4% annually, Montreal up 6.6%, and Winnipeg up 6.5%.

Atlantic Canada and the Prairies remained seller's markets, with rising sales-to-new-listings ratios driven more by declining inventory than surging demand.

The divergence reflects different economic fundamentals. Ontario and B.C. have been hit harder by trade uncertainty with the U.S., higher unemployment, and more significant exposure to tech sector layoffs. Quebec and the Prairies have more diversified economies and haven't seen the same degree of correction.

For buyers, this regional variance matters. A price decline in Toronto doesn't help you if you're looking in Montreal, where prices are still climbing.

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What Happens Next

Most forecasts expect modest price declines to continue through 2026, followed by stabilization or slight recovery in 2027. CREA projects the national average will decline by 0.3% in 2025, bringing it to $687,898, before rebounding 1.2% to $696,074 in 2026.

But those projections assume no major economic shocks, stable interest rates, and continued population growth. Any of those assumptions could prove wrong.

U.S. tariff policy remains unpredictable. If trade tensions escalate, Canadian GDP could take a hit, unemployment could rise, and housing demand could weaken further. That would put more downward pressure on prices.

Alternatively, if rates drop faster than expected and the economy stabilizes, pent-up demand could materialize quickly. First-time buyers who've been waiting on the sidelines might decide the time is right. That could firm up prices even at current levels.

The wildcard is immigration policy. Canada has significantly reduced immigration targets and temporary resident permits. Fewer newcomers mean less housing demand. That's helped ease pressure in rental markets, where rents have moderated after spiking to record highs in 2023-2024. But it also removes a key source of buyer demand.

If immigration picks back up in 2027-2028, demand could surge again. If it stays constrained, prices could drift lower for longer.

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The Mindset Shift That's Here to Stay

What's clear is that the psychological shift around homeownership isn't going away. Younger generations have watched real estate both boom and correct. They've seen friends and family struggle with mortgage payments, experience renovictions, and face financial stress from homeownership.

They've also lived through multiple economic crises, student loan burdens, and a cost-of-living squeeze that makes saving for a down payment nearly impossible without family help. Forty-six percent of millennials report needing financial assistance from relatives to afford homeownership.

This creates a paradox. Most younger Canadians, 84% according to surveys, still believe homeownership is a worthwhile investment. Seventy-four percent say owning a home is a priority. But their actions don't match their stated beliefs.

The disconnect stems from recognizing that while real estate can build wealth over the long term, it comes at a cost: reduced liquidity, limited flexibility, and years of constrained cash flow. Previous generations accepted those trade-offs without question. Today's buyers are weighing them more carefully.

Some will decide homeownership is worth it. Others will choose to rent and invest their money elsewhere, preserving flexibility and avoiding leverage. Neither choice is wrong. They're just different calculations based on different priorities.

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What This Means for the Market

The hesitation among younger buyers and investors means demand will likely remain tepid even as affordability improves modestly. Sales volumes may stay below historical averages for years.

That puts downward pressure on prices, but not catastrophic pressure. Enough people still want to buy, and supply constraints remain real in many markets. We're unlikely to see dramatic price drops from here.

Instead, expect continued drift. Small monthly declines that accumulate slowly. Inflation eating away at nominal values. Real prices staying flat or declining modestly for several more years.

For sellers, this means accepting that the 2021-2022 peak is gone and not coming back anytime soon. Properties priced to 2022 expectations will sit on the market. Properties priced to current reality will sell, but at lower values than hoped.

For buyers, the calculus is complex. Real prices are the lowest they've been in nearly a decade. But carrying costs are high, and there's no guarantee prices won't drift lower still. Jump in now and you might catch the bottom. Wait and you might get a better deal, or you might watch rates drop and prices firm up again.

There's no perfect answer. There rarely is with real estate. The key is making decisions based on your personal financial situation, your life goals, and your risk tolerance rather than trying to time the market perfectly. If you're trying to navigate this complex environment and figure out what makes sense for your specific situation, Coldwell Banker Horizon Realty can help you cut through the noise with analysis grounded in local market realities rather than national headlines.