Home sales across Canada fell 8% in February, according to the Canadian Real Estate Association, extending a slump that's lasted nearly five years. The slowdown comes despite lower interest rates that were supposed to kickstart the market. Sales hit 428,160 units in February on an annualized basis—a far cry from the 766,000 units traded in early 2021. While the real estate board noted activity picked up near month's end, the overall picture shows Canadians staying on the sidelines. Some are waiting for prices to drop further, others are spooked by trade uncertainty with the U.S., and many simply can't afford what's on the market.

This isn't just a national cooling-off. The market is splitting along sharp regional lines, and that divide matters more than the headline numbers suggest. A January 2025 report from the C.D. Howe Institute argues Canada cannot solve its housing affordability crisis simply by adding more homes in major centers like Toronto and Vancouver. The think tank's research found that building exclusively in superstar cities doesn't improve affordability—it just attracts more people from smaller cities, keeping prices stubbornly high. Meanwhile, construction and home sales in Ontario and British Columbia remain weaker than their 10-year averages, while staying above historical averages in the Prairies and Quebec, creating a country with two very different housing markets.

The mechanics behind this split are straightforward but brutal. In Toronto and Vancouver, the largest gaps between construction costs and market prices exist, both on a per square foot basis and absolute level. Regulatory barriers, development charges, and restrictive zoning drive up costs so much that in Vancouver, the gap between construction costs and market prices for a single-detached home was $1,266,000—about 63% of the final sale price. That's not profit going to builders; it's waste baked into the system through fees, delays, and restrictions. Saskatchewan tells the opposite story: the province has experienced 26 consecutive months of above-average sales, with low inventory persisting and benchmark prices rising 8% year over year. The data shows what happens when cities make it easier to build. From the peak in early 2021 to February 2026, national sales dropped 44%, but that average conceals massive regional differences—BC and Ontario cratered while Prairie cities held steady or grew.

What comes next depends on whether policymakers learn the right lessons. The C.D. Howe Institute urges all levels of government to coordinate practical policies that support building up a small set of Canada's smaller cities so they can join the ranks of big cities and compete to make housing more affordable across Canada. That means investing in transit links between large and mid-sized urban centers, cutting development charges, and making places like Kitchener-Waterloo or Kelowna attractive enough to pull pressure off Toronto and Vancouver. The February sales drop isn't just a cyclical blip—it's a signal that the old model of concentrating growth in a handful of cities has broken down. Unless Canada builds more large cities instead of just bigger ones, affordability won't return and sales will keep bouncing along these depressed levels.