After a subdued 2024, Canada’s housing market is poised for a strong comeback in 2025, driven by falling interest rates and new federal policies designed to enhance affordability for buyers.
The Canadian Real Estate Association (CREA) reported a 26% year-over-year increase in home sales for November, marking two consecutive months of significant gains. Experts predict that this momentum, coupled with pent-up demand, will lead to a more robust housing market in the new year.
Key Drivers Behind the Recovery
Lower Interest Rates
The Bank of Canada’s recent rate cuts have been a game-changer. After holding rates at a high of 5% earlier in the year, the central bank began easing monetary policy in June, with five rate cuts to date. The policy rate now stands at 3.25%, making borrowing significantly more affordable.
“First-time homebuyers are back in the market and will continue to drive activity,” said Christopher Alexander, President of Re/Max Canada.
New Federal Policies
Federal measures introduced on December 15 aim to make homeownership more accessible, including:
- Extending the maximum mortgage amortization period for first-time buyers to 30 years (up from 25 years).
- Raising the insured mortgage cap from $1 million to $1.5 million.
Victor Tran, a mortgage and real estate expert with Ratesdotca, highlighted that recent changes to stress tests for uninsured mortgages will also benefit buyers.
“The spring market will be really hot because of these changes,” said Tran.
Market Outlook
Re/Max’s 2025 housing market report predicts home sales will rise in 33 of 37 Canadian regions, with national residential prices increasing by 5%. Economists at TD Bank are forecasting a 16% rise in home sales and an 8% increase in average home prices for 2025.
While the initial surge in demand could push prices higher, TD economist Rishi Sondhi warned that this pent-up demand may taper off by mid-year.
Challenges and Opportunities
Despite the optimistic forecast, affordability remains a concern for many Canadians.
- The national average sale price was $694,411 in November, reflecting ongoing affordability challenges.
- Qualification for mortgages remains stringent, even with lower rates.
Victor Tran cautioned that while rates have improved, they are still higher than pre-2021 levels.
“Affordability is improving, but house prices need to come down further to spur even greater activity,” he said.
Advice for Buyers
Experts advise potential buyers to act within their means and avoid waiting too long in hopes of perfectly timing the market.
“You won’t see the sky-high activity of 2021 for a long time,” said Alexander. “My advice is always, ‘Buy within your means.’ Trying to time the market often leads to disaster.”
With favorable conditions on the horizon, 2025 is shaping up to be a pivotal year for Canada’s housing market, balancing renewed buyer confidence with the ongoing challenges of affordability and inventory.