New mortgage rules and supply trends will play a role – but the direction of rates and the Bank of Canada will be the main influence over the coming year, according to leading broker
Impending mortgage regulatory changes, availability of inventory, and the trajectory of home prices are all set to play a major role in determining how Canada’s housing and mortgage markets perform in 2025. But the main factor in that performance is set to be an unsurprising one: the direction of interest rates and borrowing costs.
Expansion of access to 30-year amortizations and a higher insured mortgage cap are scheduled to take effect on December 15, measures widely viewed as a positive step in improving the affordability picture for Canadians. Still, interest rates will remain the top consideration for borrowers as they weigh up making a move next year, according to Drew Donaldson (pictured top), mortgage broker and principal at Toronto-based Donaldson Capital.
Buyer confidence could return as a result of those mortgage rule adjustments. “Whenever there’s a rule change or regulatory change that’s positive, it brings back good news to the market,” Donaldson told Canadian Mortgage Professional. “But I really think it’s a story about interest rates. If interest rates continue to go down, you’re going to see a very strong 2025.
“If interest rates stay where they’re at, I think 2025 will be fine – but it won’t be anything robust like 2020 or 2021. If interest rates were to go up, which is not what we’re predicting, I think you’d see a slowing market.”
Market confidence on the way up as rates tick lower
The positive news for mortgage brokers and borrowers alike is that the prospect of rates climbing significantly next year remains, for now, a distant one. The Bank of Canada has already trimmed its benchmark rate several times this year, with further cuts expected to arrive in 2025, while five-year Government of Canada bond yields – which lead fixed mortgage rates – have seen a significant decline throughout much of 2024 despite a recent uptick.
Those trends have already had an impact, according to Donaldson, with the refinance market beginning to stir back to life and prospective buyers increasingly ready to take the plunge into the market. “People are now starting to believe that not only have rates come down so they’re more manageable, but that they’re going to continue to go down in the future,” he said, “and that just brings back confidence for everybody.
CMHC reports rising mortgage delinquency and financial strain due to higher interest rates. Chris Karram of SafeBridge Private Wealth stresses the importance of a comprehensive financial plan to manage mortgage debt and assets. https://t.co/ZfpkC1bUdv
— Canadian Mortgage Professional Magazine (@CMPmagazine) November 13, 2024
“People are licking their chops right now. We’ve found that people are extremely price sensitive. So I think the last few years have been tough on people economically and they’re trying to save every bit of money they can when you refinance them or buy a new property – and they want a really competitive interest rate. But at the end of the day, it’s all positive news, and I think 2025 might even be better.”
What else could impact the Canadian mortgage market in 2025?
One wild card for 2025: the return of Donald Trump to the US presidency, with the impact of his new administration’s policy proposals on both Canada-US relations and the wider North American economy remaining to be seen.
The bond market has shown some concern about Trump’s economic approach and its potential to spur inflation, while others point to deregulation and streamlining of government costs as potential boons for the economy.
New tariffs, meanwhile, could also weigh down on the Canadian economy, although Donaldson described his conversations with clients as “bullish” on economic prospects for the years ahead. “I’ve had clients starting to say to me, ‘I kind of want to get into [the market] now, because I think if interest rates keep going down, next year there might be bidding wars and things like that,’” he said.
“I’m cautiously optimistic. I think the worst is behind us. The last two to three years have been a challenging market in Canada, and I also think the condo market is still struggling – but that’s going to work itself out. It’s all about interest rates. And I think in 2025, 2026, people will be pleasantly surprised on the real estate market in general.”
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