CMHC Calls the Bottom: Why Falling Rents in Toronto and Vancouver Signal a Buy Window
Rents are falling. In Toronto and Vancouver, the two cities where affordability became a national punchline, asking rents dropped 3% to 4% year-over-year in mid-2026. Vacancy rates that sat at 1.5% in 2024 have edged toward 2.7%. Landlords are offering incentives for the first time in years. One month free. No application fees. Waived pet deposits. This is what happens when purpose-built rental completions flood the market and demand softens simultaneously. The Canada Mortgage and Housing Corporation calls it a temporary equilibrium. They also call it a buy window.
The timing matters. The supply hitting the market now was greenlit in 2021 and 2022, when interest rates were near zero and purpose-built rental was the obvious allocation for institutional capital. Those towers are finishing construction right as federal immigration caps tighten, temporary resident permits shrink, and the labor market cools. Fewer students. Fewer new arrivals. More households doubling up or staying put. The result is predictable: landlords competing for tenants instead of the other way around.
Why CMHC thinks this won't last
The CMHC's position is blunt. Rents are falling because completions outpaced demand for about twelve months. That imbalance will close. Immigration policy can shift. The economy will stabilize. But the pipeline of new starts has already slowed sharply. Projects that would have delivered units in 2027 and 2028 were shelved in early 2024 when the Bank of Canada held rates above 4.5%. The completion bulge you're seeing now is the last echo of the 2021 boom. After this wave clears, the gap reopens.
The math is structural. Canada's population grew by roughly 1.2 million people in 2023, the fastest rate since the 1950s. Housing starts didn't keep pace. The buffer CMHC expected from declining household formation didn't materialize because household formation isn't discretionary when rents hit $2,400 for a one-bedroom. People move in with roommates, but they don't disappear. When affordability eases even slightly, latent demand resurfaces. The CMHC projects that demand rebound will hit just as the current supply surge ends. That's the window.
What the market isn't pricing yet
Institutional investors are still underwriting deals at cap rates that assume rent growth resumes in 2027. The smaller operators, the ones who bought pre-construction condos in 2021 and are now closing on units they can't fill at their pro forma rent, are the ones taking the hit. They're listing. They're negotiating. They're offering seller financing in some cases. That's where the opportunity sits.
A 650-square-foot unit in Liberty Village that would have rented for $2,700 in early 2024 is listing at $2,450 now. The buyer who picks it up at a 15% discount to 2023 pricing and locks a tenant at the current rate isn't speculating on appreciation. They're locking yield at a moment when the market has overcorrected and the structural shortage hasn't changed. If CMHC is right about demand rebounding in late 2027, that unit is cash-flowing through the gap and appreciating into the recovery.
The risk is if they're wrong. If immigration stays capped, if GDP growth stalls longer than expected, if the wave of completions continues past 2026 because projects currently under construction finish on delayed timelines. Those are real risks. But betting against housing scarcity in Toronto and Vancouver has been the wrong trade for two decades. The current dip is supply-driven, not demand destruction. Falling rents in a housing shortage aren't a bottom. They're a mispricing.
