New lending rules and rate cuts expected to boost accessibility and stabilize the market
Canada’s housing market is set to enter a period of steadier growth in 2025 after years of dramatic highs and lows, according to Royal LePage’s latest forecast.
The aggregate home price in Canada is projected to rise by 6% year over year to $856,692 in the fourth quarter of 2025, signalling a more balanced market after a period of volatility driven by pandemic disruptions, rapid interest rate changes, and economic uncertainty.
"The backlog of willing and able buyers continues to grow, and upcoming changes to mortgage lending rules will further enhance Canadians' borrowing power," said Phil Soper, president and CEO of Royal LePage.
Home prices are expected to rise across all major Canadian markets next year. Quebec City is forecast to see the largest annual price gain at 11%, followed by Edmonton and Regina with 9% increases. While the Greater Toronto Area (GTA) and Greater Vancouver will experience more modest growth of 5% and 4%, these regions remain among the country’s most expensive.
In Calgary, which experienced rapid price appreciation over the past two years, prices are expected to rise by 4%, along with Ottawa, Halifax, and Winnipeg.
The residential market is also benefiting from declining borrowing costs. The Bank of Canada’s overnight lending rate, currently at 3.75%, has been cut four times, driving increased buyer activity since October. These rate cuts, along with optimism for further reductions, are drawing sidelined buyers back to the market.
"The Bank of Canada's shift from 'inflation fighter' to 'economy booster' has taken time to influence buyer behaviour,” Soper said. “We saw a marked increase in market activity at the start of the fourth quarter, following the Bank of Canada's 50-basis-point rate cut.
“Buyers now believe home prices have hit bottom and are eager to act before competition intensifies."
However, housing supply remains a critical issue, with inventory levels tightening as buyer activity picks up. In regions like Atlantic Canada, the Prairies, and Quebec, where prices are more affordable, supply shortages have been evident since early 2024. In contrast, supply in Toronto and Vancouver had been building, though demand began to rise again by mid-fall.
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“Flat property prices earlier this year reduced the urgency for buyers, creating a temporary stalemate where inventory lingered and buyers hesitated,” explained Soper. “By mid-fall, this dynamic began to shift as buyers re-engaged with the market.”
New mortgage rules set to take effect in December 2024 are expected to make homeownership more accessible. Changes include extending eligibility for 30-year amortizations on insured mortgages to first-time buyers and purchasers of new construction properties, and raising the mortgage insurance cap from $1 million to $1.5 million.
"Improved lending conditions, combined with declining interest rates, will unlock new housing opportunities for many Canadians in the new year,” Soper said. “First-time buyers will be the primary beneficiaries of these initiatives, as their ability to borrow more for less with a smaller down payment will help bring them closer to their first home purchase.
“We believe the return of buyers to the market will encourage builders and trigger a wave of new supply, which is very much needed."
Further easing for mortgage holders includes the recent elimination of the stress test requirement for uninsured borrowers switching lenders upon renewal, provided there are no changes to the loan amount or amortization period. This change, introduced by the Office of the Superintendent of Financial Institutions (OSFI), allows borrowers more flexibility to explore competitive rates.
While the new rules and rate cuts are expected to ease affordability challenges for buyers, Soper emphasized the need for policymakers to address Canada’s housing supply crisis.
“With our population growing rapidly through both natural increases and immigration, it is essential to stay focused on supporting the development of new homes if we hope to address housing affordability,” he said in the report.
To manage this growth sustainably, the federal government has reduced its immigration targets for 2025 and 2026, scaling back from 500,000 annual arrivals to 395,000 and 380,000, respectively. Despite the reductions, these targets remain above pre-pandemic levels.
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