The chill in Canada’s housing market could be thawing sooner than expected.
Interest rates are dropping.1 Pent-up demand is building.2 Sales are starting to heat up.3 And a potentially electrifying set of mortgage rules just went into effect, making it easier than it ‘s been in years for first-time buyers with smaller down payments to qualify for a higher priced home.4
As a result, some experts now project that competition for new homes could start tightening sooner than anticipated.5 “It’s game on for home buyers,” wrote NerdWallet’s mortgage and real estate expert Clay Jarvis after the Bank of Canada announced its latest jumbo rate cut in December. “The combined impact of lower rates and less-stringent lending guidelines could be a game-changer –– for some buyers, anyway.”4
Even the Bank of Canada acknowledged last month that a confluence of factors that are now widely expected to come together in 2025 could help to rekindle Canada’s long frozen housing market. “There are some mortgage rule changes to come,” noted Bank of Canada senior deputy governor Carolyn Rogers at a December press conference. Plus, “another 50-basis-point cut. We know housing is very sensitive to interest rates, so we do expect more pickup.”6
What does this mean for you? Read on for our take on what to expect for 2025.
MORTGAGE RATES WILL BOTTOM OUT
With the Bank of Canada’s policy rate now at its lowest point since 2022, both fixed and variable rate mortgages are more affordable than they have been in years.7
Mortgage rates could slide further still. The Bank of Canada is still widely expected to cut its key rate by another percentage point or more this year, which will push the prime rate below 5%.8
But don’t expect fixed mortgage rates to fall too much more in the coming months, if they drop at all. In fact, BMO Senior Economist Robert Kavcic thinks fixed rates may have already hit bottom. That’s because today’s rates not only reflect previous rate cuts. They’re also influenced by anticipated rate changes, with the Bank of Canada’s upcoming rate cuts already baked in.9
Fixed mortgage rates are also based on changes to Canadian bond yields, which have been extra volatile lately as market watchers nervously eye a potential trade war with the U.S. and sticky core inflation. As a result, fixed rates could move higher if bond yields increase.10
Variable mortgage rates, on the other hand, are more likely to keep dropping in tandem with the prime rate.10 However, they might not fall as quickly as some borrowers might hope: after two back-to-back jumbo rate cuts last fall, the Bank of Canada has now signaled that rate cuts going forward are likely to be more gradual. In other words: no more half-point rate cuts.11
What it means for you:
If you’re a buyer, now’s a good time to get pre-approved for a mortgage so that you can lock in a competitive interest rate and shop around with confidence. Ask us for a referral to a trusted mortgage professional who can help you understand your budget and buy a home when ready.
If you’re a seller, good news: your pool of eligible buyers is likely to expand. But keep in mind that affordability concerns will still be top of mind for many home buyers.
DEMAND COULD RAMP UP QUICKLY
If there’s one thing about Canada’s housing market that most experts seem to agree on this year, it’s this: the stage is set for a real estate revival in 2025, particularly this spring.12 But with home ownership already becoming more accessible than it’s been in years, some experts now think that we will see the housing market thaw further well before the weather gets warmer.13
According to Shaun Cathart, chief economist at the Canadian Real Estate Association (CREA), for example, mortgage rates have already fallen low enough this winter to spark renewed interest from home buyers. In fact, an off-season pop in home sales last quarter suggests that some budget-minded buyers are already eyeing what’s available and bidding while they can.14
“Normally we might expect this market rebound to take a pause before resuming in the spring,” noted Cathart in a news release announcing CREA’s most recent home sales data. “However, the Bank of Canada’s latest 50-basis-point cut together with a loosening of mortgage rules could mean a more active winter market than normal.”14
According to Rates.ca’s mortgage expert Victor Tran, the Bank of Canada’s latest rate cuts could also have a psychological effect on homebuyers. “We could see a turning point in buyer psychology that could drive a busy winter season,” said Tran in an interview with Bloomberg.15
That’s what happened last fall when mortgage rates declined and sales picked up significantly, surprising analysts who predicted fewer transactions. As analysts at RBC noted at the time: “Interest rate cuts are finally boosting housing market activity in a visible way across Canada.”16
Experts say that Canada’s latest batch of mortgage rules, which make it easier for borrowers with smaller down payments to buy a home, could also juice demand this year.17
What it means for you:
If you’re a buyer, plan ahead for extra competition. As of December 15, first-time home buyers can now stretch their mortgage amortization to 30 years, even if their down payment is less than 20%. Previously, amortization periods for insured mortgages were capped at 25 years.4
The government of Canada also relaxed requirements for buying a home in the million dollar range. Borrowers who put down less than 20% can now buy a home priced up to $1.5 million.4
If you’re a seller, you may see more offers and activity later this year. But with more buyers trickling into the market this winter, listing your home now could give you an advantage.
HOME PRICES WILL INCREASE
As real estate competition increases, experts widely predict that home prices will also edge up.18
Average home prices still have a long way to go before they reach their pandemic-era peak.
Inventory built up significantly last year as more homeowners tested the market and budget-constrained home buyers chose not to jump. That, in turn, helped dampen prices.19
But prices could pick up quickly as buyers reenter the market and start to compete for what’s available. As Bank of Canada Governor Tim Macklem noted last fall: “It wouldn’t be surprising that, as interest rates come down … you see some pickup in housing prices.”20
Experts are divided, though, on just how high home prices will go. For example, analysts at Desjardins expect price growth to be relatively subdued. “Our forecast is for the advance in existing home sales and prices to remain modest despite falling interest rates.”19
But other analysts are more bullish, pointing to additional factors impacting home prices, such as pent-up demand, still-limited inventory, and relaxed mortgage rules for some home buyers.21
In fact, analysts at TD Bank think that Canada’s new mortgage rules could have a particularly potent effect on home prices. “These measures will add a secondary tailwind to a market that’s already sprung back to life from lower interest rates and household income resilience,” wrote TD analysts. As a result, “Canadian home prices are likely to see an upgrade in our upcoming forecast for 2025 –– an 9% annual average gain versus 6% in our September projection.”17
What it means for you:
If you’re a buyer still sitting on the sidelines, you might not want to wait too much longer to jump into the market –– especially if you’re on a budget. Although some buyers may already be testing the market, winter is traditionally a slow period for real estate. So it is often a great time to snag some early deals.
If you’re a seller, you may see stronger offers this year than you would have received in 2024. But squeezed affordability is still a major issue for many buyers. So you’ll want to be careful not to overprice. Reach out for a free consultation so we can help you set an ideal home price.
INVENTORY MAY EASE
Canada’s historic housing crunch is far from solved. But home buyers have been enjoying more choices lately as a larger number of homes, including freeholds and condos, go up for sale.22
Inventory is expected to keep easing through 2025, particularly in the spring when more sellers list their homes.23 According to National Bank Financial Markets economist Daren King, many sellers have been holding back their listings –– but only temporarily. As King noted in an interview with Real Estate magazine: “I think they want to sell in a market that has some momentum.” So once the market thaws, sellers may take their chance and list their homes.24
Even with rising inventory, though, Canada’s notoriously limited supply of available homes is still likely to pose challenges –– especially since there continue to be far more people who need homes in Canada than there are available residences.25
New home construction may also weaken this year as builders face ongoing challenges with persistently high building costs and other issues. As a result, “homebuilding activity is expected to be soft in 2025,” say Desjardins analysts, which could worsen the housing crunch over time.26
What it means for you:
If you’re a buyer, more homes for sale in certain markets could give you an edge, especially if you start looking for a home before competition heats up in the spring. But listings overall will still be relatively tight: so you’ll need to be realistic about what you can get.
If you’re a seller, you may want to consider listing your home when competition with other sellers is more muted. Home prices tend to rise when there are fewer available homes for sale and decrease when inventory significantly goes up. We can help you determine the best strategy for selling your home while keeping nearby competition in mind.
WE’RE HERE TO GUIDE YOU
This year is likely to be a memorable one for real estate. But with a fair amount of economic uncertainty still on the horizon, the housing market could also shift extremely quickly. That’s why it’s important to have an experienced professional you can trust to help you navigate the twists and turns. Contact us for a free consultation so we can help you map out an ideal strategy.
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
Sources:
- NerdWallet –
https://www.nerdwallet.com/ca/mortgages/bank-of-canada-december-2024-rate-cut-game-on-for-home-buyers - MPA Magazine –
https://www.mpamag.com/ca/mortgage-industry/market-updates/rbc-economist-sees-housing-market-recovery-picking-up-pace/516993 - Canadian Real Estate Association –
https://www.crea.ca/media-hub/news/canadian-home-sales-continue-to-climb-in-november/ - Global News –
https://globalnews.ca/news/10916945/insured-mortgage-cap-amortization-changes-canada/ - Wealth Professional –
https://www.wealthprofessional.ca/news/industry-news/bank-of-canada-rate-cut-drives-early-spring-housing-market-projections/387847 - The Globe and Mail –
https://www.theglobeandmail.com/business/article-bank-of-canada-expects-home-sales-to-pick-up-with-latest-rate-cut-new/ - MPA Magazine –
https://www.mpamag.com/ca/mortgage-industry/market-updates/improved-affordability-in-canadas-housing-market-comes-with-caveats/514287 - Financial Post –
https://financialpost.com/news/economy/latest-inflation-numbers-mean-bank-of-canada - Global News –
https://globalnews.ca/news/10915042/bank-of-canadas-rate-cut-mortgage-impact/ - TD Stories –
https://stories.td.com/ca/en/article/bank-of-canada-lending-rate-cut-december-2024 - CBC News –
https://www.cbc.ca/news/business/bank-of-canada-dec-11-1.7407231 - Financial Post –
https://financialpost.com/real-estate/bank-of-canada-rate-cut-boost-housing-market - Wealth Professional –
https://www.wealthprofessional.ca/news/industry-news/bank-of-canada-rate-cut-drives-early-spring-housing-market-projections/387847 - Canadian Real Estate Association (CREA) –
https://www.crea.ca/media-hub/news/canadian-home-sales-edge-up-again-following-third-interest-rate-cut/ - BNN Bloomberg –
https://www.bnnbloomberg.ca/business/real-estate/2024/11/18/mortgage-brokers-expect-more-competition-as-buyers-re-enter-housing-market/ - RBC –
https://thoughtleadership.rbc.com/october-sales-gains-an-inflection-point-for-canadas-housing-markets/ - TD –
https://economics.td.com/ca-questions-answers - BNN Bloomberg –
https://www.bnnbloomberg.ca/business/real-estate/2024/12/11/how-will-the-bank-of-canada-rate-cut-impact-real-estate/ - Desjardins –
https://www.desjardins.com/qc/en/savings-investment/economic-studies/canada-home-sales-nov-2024.html - Financial Post –
https://financialpost.com/real-estate/mortgages/rate-cuts-mortgages-most-searched-google-topic-since-pandemic - CIBC –
https://economics.cibccm.com/cds?ID=90686de1-1fe2-49b9-a48a-a0e2a568e6ad&TYPE=E - Canadian Real Estate Association (CREA) –
https://stats.crea.ca/en-CA/ - Canadian Mortgage Trends –
https://www.canadianmortgagetrends.com/2024/10/crea-lowers-housing-market-forecast-for-2024-amid-holding-pattern-for-home-sales/ - Real Estate Magazine –
https://realestatemagazine.ca/cancelled-listings-surge-as-sellers-await-market-shift/ - MPA Magazine –
https://www.mpamag.com/ca/mortgage-industry/market-updates/resale-homes-to-see-renewed-demand-in-2025-cibc/517189 - Desjardins –
https://www.desjardins.com/qc/en/savings-investment/economic-studies/housing-outlook-october-31-2024.html
