The Canada Mortgage and Housing Corp. is forecasting home prices could match peak levels seen in early 2022 by next year and reach new highs by 2026.

The agency’s latest housing market outlook report also says housing starts in Canada are expected to decline this year before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction.

A report last week from the agency showed construction began on 137,915 new units last year across Canada’s six largest cities, as levels remained in line with the past three years due to a surge of new apartments.

But it says despite an increase in rental housing coming on the market in 2023, supply is not forecast to keep up with demand, leading to higher rents and lower vacancy rates in the coming years.

CMHC says affordability in the home ownership market will also be a concern for the next three years, as declining mortgage rates and the strongest population growth since the 1950s will likely spur a rebound in home sales and prices.

It predicts sales levels from 2025 to 2026 will slightly surpass the past 10-year average but remain below the record levels recorded from 2020 to 2021, due to how expensive housing remains.