As we leave 2024 behind, Canada’s housing and mortgage markets reflect a year of resilience and adaptation. The Bank of Canada’s pivot to rate cuts, following two years of steady hikes, provided much-needed relief to borrowers, setting the stage for what’s to come in 2025.

2025 Housing Market and Interest Rate Outlook

The easing cycle combined with Canada’s resilient economy has helped stabilise the housing market. Modest gains in home sales and prices were seen across the country, though challenges remain. Borrowers renewing mortgages continue to feel the strain of elevated borrowing costs, and housing supply issues keep affordability a top concern for policymakers and buyers alike.

With cautious optimism, here’s what experts forecast for the housing market and interest rates in 2025:

Real Estate Market: Forecasts from Leading Analysts

Canadian Real Estate Association (CREA):

• 2025 Home Sales Forecast: 499,816 (+6.6% YoY)

• 2025 Home Price Forecast: $713,375 (+4.4% YoY)

• Commentary: Sales are expected to remain steady until spring 2025, followed by a sharper rebound. The potential for stronger momentum is forecast beginning in Q2 2025.

Re/Max Canada:

• 2025 National Average Price Increase: +5% YoY

• Commentary: Anticipated rate cuts in late 2024 have set the stage for a more active market in 2025, with sales expected to rise in 33 of 37 regions surveyed, and some areas seeing up to a 25% sales increase.

RBC Economics:

• 2025 Home Resales Forecast: 518,400 (+12.5% YoY)

• 2025 Home Price Forecast by Q4: $809,900 (+1.6% YoY)

• Commentary: Gradual price appreciation is expected until more significant affordability improvements occur following further rate cuts.

TD Economics:

• 2025 Home Sales Growth Forecast: +15.8%

• 2025 Home Price Growth Forecast: +8%

• Commentary: Falling borrowing costs and economic growth will support positive sales growth, bolstered by December’s mortgage rule changes.

Interest Rate Projections

The Bank of Canada is expected to slow its rate-cutting pace in 2025. After five consecutive cuts totalling 175 basis points in 2024, the central bank will likely adopt a meeting-by-meeting approach, influenced by incoming economic data.

• Overnight Rate: Expected to decline further from 3.25%, potentially settling between 2.00% and 3.00% by mid-2025.

• Bond Yields: Likely to remain stable around 3.00%, influencing fixed mortgage rates.

Borrower Impact:

• Variable-Rate Loans: Anticipated to see continued reductions.

• Fixed-Rate Mortgages: Predicted to stabilise, offering more predictability for borrowers.

Big 6 Banks: Latest Interest Rate and Bond Yield Forecasts

Final Thoughts

While 2025’s housing and interest rate outlook is cautiously optimistic, challenges remain. Borrowers and buyers should prepare for gradual improvements, keeping a close eye on economic data and policy changes. For those in the market, the coming year could present a window of opportunity as affordability begins to improve and competition intensifies.

The Housing Market Outlook for 2025

Canada’s housing market has been a challenging landscape for prospective homebuyers over the past few years. Affordability issues remain a persistent obstacle, but as we step into 2025, changes in mortgage rules, lower borrowing costs, and regional market dynamics might provide some relief for those looking to enter the market. Here’s a detailed look at what’s expected in the year ahead.

Mortgage Rule Changes: A Boost for First-Time Buyers

One of the most significant changes impacting the 2025 housing market stems from Ottawa’s late-2024 policy adjustments. These include expanded access to insured mortgages and the introduction of 30-year amortizations for certain buyers. Here’s how these changes work:

1. 30-Year Amortizations: First-time homebuyers or those purchasing newly built homes they plan to live in can now opt for a 30-year mortgage. This extension lowers monthly payments, making it easier to qualify for a mortgage, although it increases the total interest paid over the loan’s lifetime.

2. Higher Insured Mortgage Price Cap: The maximum price for an insured mortgage has risen from $1 million to $1.5 million. This change allows buyers to put down less than 20% upfront on homes within this new range, significantly reducing the savings needed to enter the market. For example, a $1.5 million home now requires a minimum down payment of $125,000 instead of $300,000.

Real estate agents like Elliott Chun from Vancouver have hailed these adjustments as game changers. The new rules could allow buyers in expensive markets like Vancouver to transition from condos to more spacious townhomes suitable for growing families. However, critics warn that increased purchasing power might drive prices higher, potentially offsetting short-term affordability gains.

Shifts in Mortgage Renewals

Another change expected to influence the housing market is the easing of stress test requirements for uninsured mortgage renewals. The Office of the Superintendent of Financial Institutions (OSFI) has announced that Canadians switching lenders won’t have to requalify under the stress test, encouraging competition and potentially leading to better rates for homeowners.

The Bank of Canada’s Rate Decisions

The Bank of Canada’s actions in 2024—cutting its policy rate five times—have set the stage for a more favourable borrowing environment in 2025. While further cuts are anticipated, they are likely to be modest. Fixed mortgage rates, influenced by bond market expectations, are expected to remain in the mid-to-low 4% range, while variable rates should continue their gradual decline. However, industry experts caution that overall affordability remains limited as high home prices persist.

Predicted Home Price Trends

Home prices are projected to climb in 2025, with Re/Max Canada forecasting a 6% increase in the average price. Single-family detached homes are expected to see a 7% rise, reaching just over $900,000, while condos are set to grow by 3.5%, hitting $605,993. The influx of new condo completions may offer more options for first-time buyers, particularly in urban markets.

Market Dynamics and Regional Variations

Realtors are suggesting the potential for a more stable housing market in 2025, with less dramatic booms or busts. Yet, regional disparities will play a significant role. In cities like Vancouver, where demand for detached homes remains strong and inventory tight, competition is likely to intensify. Conversely, the condo market may soften as increased supply and downward pressure on rents create more opportunities for buyers.

The Broader Economic Context

Canada’s sluggish economy and potential trade disputes with the U.S. could dampen the housing market’s momentum. Rising unemployment or economic instability would likely curb homebuying activity. Additionally, many Canadians renewing their mortgages in 2025 will face higher rates, potentially impacting household spending and economic growth.

What to Expect in 2025

The combination of new mortgage rules, lower borrowing costs, and regional trends sets the stage for a more dynamic housing market in 2025. While affordability challenges persist, the outlook suggests increased activity, particularly among first-time buyers. The spring market is expected to be especially competitive, driven by improved accessibility and pent-up demand.

For Canadians navigating this evolving landscape, the key will be understanding how these changes align with personal financial circumstances and long-term goals. With careful planning and a keen eye on market trends, 2025 could be a year of opportunity for prospective homebuyers across the country.