Falling mortgage rates drive demand, but condos remain under pressure
Demand for resale homes is set to improve in 2025, driven by falling mortgage rates and a stronger appetite for single-family detached homes, duplexes, and townhomes, according to a recent report by CIBC Economics.
However, high-rise condominiums are expected to remain under pressure, with the segment likely to linger in what the report calls “recessionary territory.”
Lower borrowing costs will support growth in demand for low-rise housing types but record low inventory and high price inflation will hamper the pace of growth in this segment and the supply-demand imbalance will likely persist.
Record-high completions are expected to increase supply in 2025, but declining investor interest in major markets like Toronto and Vancouver, where condominium prices remain high, will limit demand.
Investors, who account for as much as 70% of Toronto’s condominium market, are facing reduced margins due to elevated costs and less favourable market conditions.
Adding to the challenges is a forecasted slowdown in population growth. With Canada’s migration rate expected to drop to 1% in 2025 from 3% in previous years, rental demand is projected to weaken further, potentially marking the peak of rent inflation.
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The anticipated oversupply in condominiums could also reduce housing starts next year, particularly in British Columbia and Ontario. Both provinces are heavily exposed to declining investor demand in the multi-family condo market.
While 2025 may present challenges, the report points to potential recovery in 2026. As new condo development slows and resale inventories shrink, declining interest rates could eventually attract investors back to the market. This shift, combined with an improved balance in supply and demand, could lay the groundwork for renewed growth in the high-rise condominium sector.
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