When the calendar turned a year ago, Canadian real estate observers were optimistic that a slow 2023 would give way to a recovery, with hopes of renewed demand as soon as spring.
But the delay in 2024 lasted longer than some expected, and the Bank of Canada waited until June to implement the first of the year’s five interest rate cuts. While buyers returned to the market this fall, experts noted that the early rate cuts hadn’t been enough to motivate everyone to move on just yet.
Now, looking ahead to 2025, economists and real estate agents believe activity will remain strong amid much lower borrowing costs and more buyer-friendly rules, despite a challenging overall affordability outlook.
The Canadian Real Estate Association reported earlier this month that the number of homes sold in November rose 26 per cent year over year, marking the second consecutive month of gains at that level. Through the first 11 months of the year, cumulative home sales increased 6.9 percent compared to 2023.
“The important thing is that first-time home buyers have returned and will continue to enter the market,” Re/Max Canada president Christopher Alexander said in an interview.
“We expect, overall, a much stronger year in terms of activity and consumer confidence, especially with further anticipated rate reductions.”
The Bank of Canada cut its policy rate by half a percentage point earlier this month, taking it to 3.25 per cent, while signaling a more gradual approach to future cuts in the new year.
Alexander said high interest rates (the central bank’s policy rate stood at five percent before its cutting cycle) have been a major barrier to entry for potential buyers.
Re/Max’s 2025 Housing Market Outlook report says it expects home sales to increase in 33 of 37 Canadian regions, including increases of up to 25 per cent, along with a national average residential price increase of five percent.
Alexander said the market didn’t really take off after the bank’s first cuts, in part because of messages that it expected to lower rates further as the months went by. He said that caused many would-be buyers to hold off “in anticipation of greater affordability.”
“But the challenge with that strategy is that, at a certain point, you reach a point of no return where rates have gone down, so it’s a little less expensive on a monthly basis, but then it becomes more competitive, so the prices go up.” said.
Hamilton, Ontario broker Mike Heddle said for the better part of two years it felt like the “pendulum had swung” from the strong 2021 and 2022 sellers’ market.
“There’s been a big lull and the masses are just waiting and watching,” said Heddle of Royal LePage State Realty.
“I predict we will see a much stronger and more resilient 2025, where we will likely see a balanced sellers’ market.”
He said buyer confidence has been evident in recent weeks, having personally seen an increase in home offers. That could continue into January after a holiday period that’s usually pretty quiet.
While pent-up demand should translate into more homes changing hands in the coming months, “it’s not going to be a force forever,” said TD economist Rishi Sondhi. He warned that the rush will likely run out “relatively soon, probably in the first half of next year.”
The average sales price nationwide was $694,411 in November, according to CREA.
The initial demand boom should push up home prices, although Sondhi noted that markets in Canada’s two largest provinces, Ontario and BC, are still dealing with large supply backlogs that will take time to clear.
Along with falling interest rates, Sondhi said recent changes to the federal government’s mortgage rules, which went into effect Dec. 15, should help lift home sales and prices.
Those measures included extending the maximum mortgage repayment period for first-time homebuyers from 25 to 30 years, and increasing the limit by which a potential buyer can obtain an insured mortgage from $1 million to $1.5 million.
TD forecasts that home sales will increase 16 per cent across Canada in 2025 year-over-year, while average home prices in Canada will increase eight per cent.
“There are falling interest rates, there is the likelihood of continued economic growth and these federal measures, all of which should support a good year for housing,” Sondhi said.
Another plus for buyers is the national banking regulator’s recent decision to eliminate a stress test for unsecured mortgages, said Victor Tran, mortgage and real estate expert at Ratesdotca.
The Office of the Superintendent of Financial Institutions announced in September that it would end the policy for lenders to apply the minimum qualifying rate to direct switches when unsecured mortgages are renewed at a different institution based on the amortization schedule and amount of the loan. borrower’s current loan.
“The spring market will be really active because of all of these recent changes in affordability,” Tran said.
Other factors, such as the labor market and political uncertainty (both domestically and in the United States) could play a role in determining the real estate outlook next year, he said.
But Tran said it’s premature to start comparing the market to 2021 and early 2022, when activity spiked.
“The rates are still not low enough compared to what they were before,” Tran said.
“Affordability is improving a little bit, but qualifying is still very difficult for many Canadians. So home prices need to come down a little bit more to really stimulate a lot more activity.”
For those about to enter the market, Alexander said waiting until the perfect moment could be a risk in itself.
“We will not see activity in 2021 for a long time. Prices were rising almost day by day,” he recalled.
“I don’t think that will happen for a long time, but my advice is always: ‘Buy within your means.’ Timing the market usually ends in disaster.”
This report by The Canadian Press was first published Dec. 30, 2024.
