2024 Market Reflections and 2025 Outlook : Preparing for the Market's Next Chapter
January 24, 2025
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
2024 Market Reflections:
The Canadian real estate market in 2024 unfolded as a dynamic tapestry of resilience, recovery, and adaptation. Shaped by interest rate adjustments and significant regulatory changes, the year's market dynamics laid the groundwork for a potentially transformative 2025 amid ongoing structural shifts. Despite the lingering pressures of elevated interest rates during the first half of 2024, the market displayed clear signs of stabilization as the Bank of Canada (BoC) implemented a series of rate cuts. |
The policy rate, which stood at 5% in early June 2024, was reduced to 3.25% by year's end, providing much-needed relief to borrowers and stimulating activity.
According to the Canadian Real Estate Association (CREA), the national average home price rose modestly by 2.8%, reaching $689,783. While this growth was measured, it marked a return to positive momentum following a period of market recalibration. Additionally, home sales surged by approximately 10%, totalling around 490,376 units—a clear indication of renewed buyer confidence and cautious optimism in the market[1].
According to the Canadian Real Estate Association (CREA), the national average home price rose modestly by 2.8%, reaching $689,783. While this growth was measured, it marked a return to positive momentum following a period of market recalibration. Additionally, home sales surged by approximately 10%, totalling around 490,376 units—a clear indication of renewed buyer confidence and cautious optimism in the market[1].
Figure 1.0
Regionally, pronounced disparities characterized the Canadian real estate market in 2024. The Prairies, particularly Alberta, emerged as leaders in growth, buoyed by economic diversification and a surge in population. Conversely, markets such as British Columbia and Ontario experienced more tempered growth, constrained by persistent affordability challenges. Notably, Vancouver and Toronto showed slower price increases, exacerbated by sharp declines in the condo market—a sector that had previously driven unprecedented home sales and price growth.
Source: CREA
Figure 2.0 & Figure 3.0
Source: CREA
The supply side of the market presented its own complexities. For much of the year, the national sales-to-new listings ratio lingered below the long-term average of 55%. However, by November, the ratio tightened to 56.9% as new listings declined by 0.5% month-over-month, following a larger 3% drop in October, while sales saw a corresponding rise in November. This tightening dynamic underscored the intricate interplay of supply constraints and renewed buyer activity[2].
Figure 4.0
Sources: CREA
2024 brought pivotal regulatory changes. The Office of the Superintendent of Financial Institutions (OSFI) adjusted mortgage rules, most notably by removing the stress test for switching uninsured mortgages at renewal. This move was seen as an effort to encourage market activity without significantly increasing risk. It helped stave off a potential flood of supply that could have overwhelmed the market as homeowners struggled to meet the stricter qualification thresholds set during the earlier low-interest rate regime, which had remained close to zero for an extended period.
Additionally, the federal government raised the insured mortgage cap from $1 million to $1.5 million for properties purchased with less than a 20% down payment. This change aimed to make homes more accessible, particularly for first-time buyers. Extending amortization periods to 30 years for first-time buyers and new builds further supported prices and spurred sales momentum despite strong headwinds from unaffordability, high interest rates, and rising unemployment. Coupled with these measures, proposed taxation policy adjustments, including changes to capital gains tax affecting high-end and investment properties, influenced market dynamics and investor behavior.
These regulatory changes produced mixed outcomes. On one hand, they boosted affordability for potential buyers, particularly first-timers. However, the market did not experience an immediate surge in activity, as buyers remained cautious, waiting for further rate cuts and price stabilization. Sellers faced a competitive environment with increased listings but only a gradual rise in demand.
2024 stands out as a year with a significant number of real estate policy changes in Canada. No other year in recent history has seen as many real estate-related regulatory adjustments, making it uniquely significant for the market. Some key changes and proposals included:
Additionally, the federal government raised the insured mortgage cap from $1 million to $1.5 million for properties purchased with less than a 20% down payment. This change aimed to make homes more accessible, particularly for first-time buyers. Extending amortization periods to 30 years for first-time buyers and new builds further supported prices and spurred sales momentum despite strong headwinds from unaffordability, high interest rates, and rising unemployment. Coupled with these measures, proposed taxation policy adjustments, including changes to capital gains tax affecting high-end and investment properties, influenced market dynamics and investor behavior.
These regulatory changes produced mixed outcomes. On one hand, they boosted affordability for potential buyers, particularly first-timers. However, the market did not experience an immediate surge in activity, as buyers remained cautious, waiting for further rate cuts and price stabilization. Sellers faced a competitive environment with increased listings but only a gradual rise in demand.
2024 stands out as a year with a significant number of real estate policy changes in Canada. No other year in recent history has seen as many real estate-related regulatory adjustments, making it uniquely significant for the market. Some key changes and proposals included:
- GST on Apartment Construction: The federal government eliminated the Goods and Services Tax (GST) on new purpose-built rental housing projects to incentivize construction in the rental sector.
- Accelerated Capital Cost Allowance (ACCA): A 10% ACCA was reintroduced for new rental projects starting construction on or after April 16, 2024, to spur housing development and increase supply.
- Development Charges: Cities with populations over 300,000 were prohibited from raising development charges, reducing construction costs to encourage housing growth.
- Mortgage Rules: New mortgage rules, effective December 15, 2024, allowed first-time buyers to secure mortgages with 30-year amortization terms and insured limits up to $2 million for properties with up to four units.
- Canadian Renters' Bill of Rights: This policy included measures such as providing renters with the rental price history of their homes and factoring rent payments into credit score assessments.
- Capital Gains Tax Increase: The inclusion rate for capital gains increased from 50% to 66.67%, with ongoing discussions about a potential home equity tax.
- Restrictions on Investors: A ban on large corporate investors from purchasing single-family homes was introduced to curb speculation. Additionally, the foreign buyer ban was extended by two years to January 1, 2027.
2025 Outlook for the Canadian Real Estate Market
While many prominent market analysts and economists are optimistic about the Canadian housing market in 2025, we take a more cautious view. Much of the optimism hinges on the anticipated benefits of low interest rates and the release of pent-up demand from buyers sidelined by unaffordable prices. However, unlike previous years, the 2025 market is likely to resemble a rollercoaster, shaped by economic policies with contradictory drivers and political shifts that inject volatility and complexity.
While many prominent market analysts and economists are optimistic about the Canadian housing market in 2025, we take a more cautious view. Much of the optimism hinges on the anticipated benefits of low interest rates and the release of pent-up demand from buyers sidelined by unaffordable prices. However, unlike previous years, the 2025 market is likely to resemble a rollercoaster, shaped by economic policies with contradictory drivers and political shifts that inject volatility and complexity.
Table 1.0: Housing Market Forecasts
Sources: Canadianmortgagetrends.com, CREA
The Rate Cut Bonanza
The Bank of Canada (BoC) is expected to continue its aggressive rate-cutting cycle, making 2025 the year of unprecedented borrowing cost reductions. Lower rates translate to cheaper mortgages, enticing sidelined buyers back into the market. However, the flipside is the potential for renewed inflationary pressures, especially in overheated markets like the Greater Toronto Area (GTA), where prices could climb further. A weaker Loonie resulting from diverging interest rates between the United States and Canada may also challenge the BoC’s ability to maintain low rates for long.
Mortgage Rules: A Double-Edged Sword
Recent changes to mortgage rules, such as extending amortization periods to 30 years and raising the high-ratio insurance cap to $1.5 million, aim to enhance affordability. However, these measures could inadvertently stoke demand in the higher-end market, particularly for single-family homes, where supply remains limited, especially pushing up prices in the $1 million homes segment, as buyers gain more borrowing power. This creates a mirage of affordability while saddling homeowners with longer-term debt burdens.
Immigration: A Cooling Effect
Canada’s housing demand has long been fueled by immigration, but 2025 marks a shift in this dynamic. Adjustments to immigration policy will reduce both permanent and temporary resident numbers, with the government planning to lower permanent resident targets by 20% and cap temporary residents at 5% of the population. This policy could temper housing demand, particularly in the condo market, while also shrinking the labor pool. The latter effect could drive up construction costs and slow new developments, further tightening supply in certain segments.
The Political Wild Card
Adding to the uncertainty is the political spectacle unfolding both domestically and south of the border. The inauguration of Donald Trump in the U.S. raises the specter of tariff wars with direct implications for Canada’s economy. Higher tariffs could impact everything from employment to the cost of construction materials. Trump’s proposed corporate tax cuts could also divert investment from Canada, potentially shrinking GDP by 2.6%, according to the Canadian Chamber of Commerce’s Business Data Lab (BDL)[3]. British Columbia, for example, anticipates its real GDP could decline by 0.6% in 2025 and 2026, with job losses projected at 124,000 by 2028[4].
Domestically, a Canadian federal election introduces another layer of unpredictability. A potential overhaul of housing policies could stabilize or disrupt market expectations, depending on the incoming government’s stance. Major rollbacks or adjustments to federal programs could have far-reaching implications for the housing market, adding to the uncertainty in an already volatile environment.
Meanwhile, the average Canadian is grappling with rising unemployment, which increased 0.3 percentage points to 6.8% in November—the highest rate since January 2017 (excluding the pandemic years). Combined with other policy measures, this could create a bifurcated market where the upper end heats up while affordability challenges intensify for lower-income buyers.
The Big Picture
So, where does this leave us? Buyers are praying for a soft landing, sellers are hoping for bidding wars reminiscent of art auctions, and investors are likely Googling "how to hedge against chaos."
This market is as volatile as they come. Rate cuts might drive short-term gains but won’t solve supply issues or make homes fundamentally more affordable. Immigration cuts will temper demand, but the market is too resilient to collapse entirely. Mortgage rule changes will help more people enter the market, but at the cost of inflating prices and extending debt burdens. And politics? It remains the ultimate wild card, capable of either stabilizing or further complicating the market.
2025: A High-Stakes Game
The Canadian real estate market in 2025 is not for the faint-hearted. It’s a high-stakes environment where the only certainty is uncertainty. Whether you’re a buyer, seller, or investor, staying informed and adaptable will be critical. This year, engagement and strategy are key—silence and inaction are not options.
In 2025, success will depend on navigating a landscape where unpredictability is the only constant.
The Real Estate Institute of Canada (REIC) equips its members to navigate market complexities, ensuring they stay ahead of evolving market trends. As we look to 2025, with its mix of rate cuts, policy changes, and shifting demand dynamics, REIC fosters collaboration between stakeholders to tackle challenges like affordability, supply constraints, and immigration policy shifts. By championing ethical practices, innovative solutions, and professional education, REIC empowers members to thrive in an uncertain and transformative market landscape.
The Bank of Canada (BoC) is expected to continue its aggressive rate-cutting cycle, making 2025 the year of unprecedented borrowing cost reductions. Lower rates translate to cheaper mortgages, enticing sidelined buyers back into the market. However, the flipside is the potential for renewed inflationary pressures, especially in overheated markets like the Greater Toronto Area (GTA), where prices could climb further. A weaker Loonie resulting from diverging interest rates between the United States and Canada may also challenge the BoC’s ability to maintain low rates for long.
Mortgage Rules: A Double-Edged Sword
Recent changes to mortgage rules, such as extending amortization periods to 30 years and raising the high-ratio insurance cap to $1.5 million, aim to enhance affordability. However, these measures could inadvertently stoke demand in the higher-end market, particularly for single-family homes, where supply remains limited, especially pushing up prices in the $1 million homes segment, as buyers gain more borrowing power. This creates a mirage of affordability while saddling homeowners with longer-term debt burdens.
Immigration: A Cooling Effect
Canada’s housing demand has long been fueled by immigration, but 2025 marks a shift in this dynamic. Adjustments to immigration policy will reduce both permanent and temporary resident numbers, with the government planning to lower permanent resident targets by 20% and cap temporary residents at 5% of the population. This policy could temper housing demand, particularly in the condo market, while also shrinking the labor pool. The latter effect could drive up construction costs and slow new developments, further tightening supply in certain segments.
The Political Wild Card
Adding to the uncertainty is the political spectacle unfolding both domestically and south of the border. The inauguration of Donald Trump in the U.S. raises the specter of tariff wars with direct implications for Canada’s economy. Higher tariffs could impact everything from employment to the cost of construction materials. Trump’s proposed corporate tax cuts could also divert investment from Canada, potentially shrinking GDP by 2.6%, according to the Canadian Chamber of Commerce’s Business Data Lab (BDL)[3]. British Columbia, for example, anticipates its real GDP could decline by 0.6% in 2025 and 2026, with job losses projected at 124,000 by 2028[4].
Domestically, a Canadian federal election introduces another layer of unpredictability. A potential overhaul of housing policies could stabilize or disrupt market expectations, depending on the incoming government’s stance. Major rollbacks or adjustments to federal programs could have far-reaching implications for the housing market, adding to the uncertainty in an already volatile environment.
Meanwhile, the average Canadian is grappling with rising unemployment, which increased 0.3 percentage points to 6.8% in November—the highest rate since January 2017 (excluding the pandemic years). Combined with other policy measures, this could create a bifurcated market where the upper end heats up while affordability challenges intensify for lower-income buyers.
The Big Picture
So, where does this leave us? Buyers are praying for a soft landing, sellers are hoping for bidding wars reminiscent of art auctions, and investors are likely Googling "how to hedge against chaos."
This market is as volatile as they come. Rate cuts might drive short-term gains but won’t solve supply issues or make homes fundamentally more affordable. Immigration cuts will temper demand, but the market is too resilient to collapse entirely. Mortgage rule changes will help more people enter the market, but at the cost of inflating prices and extending debt burdens. And politics? It remains the ultimate wild card, capable of either stabilizing or further complicating the market.
2025: A High-Stakes Game
The Canadian real estate market in 2025 is not for the faint-hearted. It’s a high-stakes environment where the only certainty is uncertainty. Whether you’re a buyer, seller, or investor, staying informed and adaptable will be critical. This year, engagement and strategy are key—silence and inaction are not options.
In 2025, success will depend on navigating a landscape where unpredictability is the only constant.
The Real Estate Institute of Canada (REIC) equips its members to navigate market complexities, ensuring they stay ahead of evolving market trends. As we look to 2025, with its mix of rate cuts, policy changes, and shifting demand dynamics, REIC fosters collaboration between stakeholders to tackle challenges like affordability, supply constraints, and immigration policy shifts. By championing ethical practices, innovative solutions, and professional education, REIC empowers members to thrive in an uncertain and transformative market landscape.
[1] https://www.crea.ca/housing-market-stats/canadian-housing-market-stats/quarterly-forecasts/
[2] https://stats.crea.ca/en-CA/
[3] https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/
[4] https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/
[2] https://stats.crea.ca/en-CA/
[3] https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/
[4] https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected]