Canadian real estate experts are projecting a rebound in both home prices and housing activity by 2025, following a recovery year in 2024. Royal LePage, a prominent real estate company, released its housing outlook, which anticipates that the aggregate price of homes will reach approximately $856,692 by the end of 2025, reflecting a 6% increase compared to the previous year. The forecast suggests that single-family detached homes will see a 7% annual rise, pushing their average price over $900,000, while condominiums are expected to experience a 3.5% increase to about $605,993. Notably, more affordable housing markets, particularly Quebec City, Edmonton, and Regina, are predicted to have the most significant growth in home prices, highlighting varied regional dynamics across the Canadian housing market.
Phil Soper, CEO of Royal LePage, characterized 2024 as a recovery phase and expressed optimism for normalized growth in home sales and values in 2025. Reflecting on the firm’s earlier predictions, he noted that while they accurately expected the economy to sidestep a recession and home prices to stabilize rather than decline, they underestimated the pace of recovery. Soper explained that the Canadian housing market was slow to respond to interest rate cuts by the Bank of Canada, which began mid-2024, suggesting that it took four rate reductions for a significant shift to occur. With the Bank of Canada’s policy rate currently at 3.75%, Soper emphasized the crucial influence of borrowing costs on prospective buyers.
Recent housing activity reports from major centers like Toronto and Vancouver indicate a notable increase in sales, particularly as first-time buyers, previously discouraged by high costs, are beginning to participate in the market by the end of 2024. Soper attributed this change to the easing of borrowing costs and a prevailing market environment that allows buyers to negotiate conditions on their purchases—a notable shift from the historically competitive landscape driven by shortages. This presents a rare opportunity for buyers to make offers contingent on factors such as home inspections and financing, which have become increasingly rare in the past decades due to the acute housing shortage in Canada.
The Bank of Canada has suggested that further rate cuts may be forthcoming as it transitions from a restrictive monetary policy aimed at curbing inflation to one that could promote economic growth. Economists are largely anticipating another rate reduction at the Bank’s upcoming decision in December and believe this trend will continue into 2025. While the prospect of lower rates could stimulate demand, Christopher Alexander, president of Re/Max Canada, voiced concerns that such expectations might create hesitation among potential buyers, trapping them in a cycle of waiting for the best possible rates, which could ultimately drive up competition and home prices as inventory declines.
In contrast, Alexander’s outlook for 2025 reflects annual price increases of about 5%, projecting a tightening market as buyers await a clearer signal regarding the trajectory of interest rates. He believes that a definitive message from the Bank of Canada regarding rate stabilization could offer the necessary clarity to homebuyers, encouraging them to enter the market. On the other hand, John Pasalis, president of Realosophy Realty, argued that the prevailing mortgage landscape might not change significantly, even with continued rate reductions. He emphasized that fixed mortgage rates are influenced more by bond market yields than directly by the Bank of Canada’s adjustments, meaning buyers may not see drastic changes in mortgage costs going forward.
Pasalis noted that while variable-rate mortgage costs could decrease, they are generally higher than fixed rates, implying that overall, future borrowing costs might not substantially drop. Despite this, both Alexander and Pasalis acknowledged a psychological aspect regarding expectations of lower interest rates, stating that potential buyers might remain hesitant to engage in the market as they anticipate further decreases in borrowing costs. This phenomenon could contribute to a slowdown in market activity until buyers feel more assured about the state of interest rates and mortgage affordability, illustrating the complex interplay between economic conditions and consumer psychology in Canada’s housing market outlook for the near future.
