Is the housing market finally turning a corner?
The Canadian housing market is gearing up for a significant rebound in 2025 as lower borrowing costs and regulatory changes fuel pent-up demand among buyers. Real estate experts and economists predict that activity will remain robust, despite challenges in affordability.
After a sluggish start to 2024, marked by hesitancy among potential buyers, the Bank of Canada initiated a series of five interest rate cuts beginning in June, bringing the policy rate down to 3.25% from 5% by year-end. These moves reenergized the market, with the Canadian Real Estate Association (CREA) reporting a 26% year-over-year increase in home sales for November.
Christopher Alexander, president of Re/Max Canada, highlighted the return of first-time buyers to the market as a key factor in the anticipated resurgence, in an interview with The Canadian Press. “We expect, overall, a much more robust year as far as activity goes and consumer confidence, especially with further anticipated rate decreases,” he said.
Re/Max’s 2025 housing outlook projects home sales to rise in 33 of 37 regions, with national average prices climbing 5%. Yet, Alexander warned of rising competition as affordability improves, which could push prices higher.
Regulatory changes boost prospects
Recent federal mortgage rule changes, effective Dec. 15, are expected to enhance market activity. The maximum mortgage amortization period for first-time buyers has been extended to 30 years from 25, while the insured mortgage cap increased to $1.5 million from $1 million. Additionally, the Office of the Superintendent of Financial Institutions removed the stress test for certain uninsured mortgage renewals.
Victor Tran, a mortgage and real estate expert with Ratesdotca, foresees a “hot” spring market, with falling interest rates. “The spring market will be really hot because of all these recent changes with affordability,” said Tran to The Canadian Press.
However, Tran emphasized that affordability remains a hurdle for many Canadians, urging cautious optimism.
Shifting market dynamics
The lingering effects of high interest rates have kept some buyers on the sidelines, delaying the full impact of rate cuts. Economists predict this pent-up demand will drive sales in early 2025, though TD economist Rishi Sondhi cautioned that the surge may taper off by mid-year.
Ontario and British Columbia, the country’s largest provinces, still face significant supply backlogs, potentially tempering price increases. Nevertheless, TD forecasts a 16% rise in home sales and an 8% uptick in average prices nationally for 2025.
Broker Mike Heddle, of Royal LePage State Realty, noted an increase in buyer confidence in recent weeks. It’s felt like the “pendulum has swung” from the strong seller’s market of 2021 and 2022, he said, predicting resilience in the market next year.
Balancing act for buyers
While conditions are improving, experts advise buyers to remain prudent. Alexander urged potential homeowners to prioritize affordability over timing the market. “Buy within your means,” he said. “Timing the market usually ends in disaster.”
As the housing market prepares for a stronger year, external factors such as the labor market and political developments may also influence its trajectory. Despite ongoing challenges, 2025 appears poised to mark a turning point for Canadian real estate.
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