Canada housing market has faced turbulent conditions in recent years, from the highs of the pandemic-era real estate boom to the more recent cooling off, caused primarily by rising interest rates and a sluggish economy. However, as we approach the end of 2024, we’re witnessing signs of recovery, spurred by three consecutive interest rate cuts by the Bank of Canada (BoC). With more rate cuts expected and new mortgage regulations coming into effect, the outlook for the spring market in 2025 looks promising.
In this blog, we will delve into the current state of the Canadian housing market, dissect regional variations, explore the impact of recent interest rate cuts, and look ahead to what potential homebuyers and investors can expect in 2025. Whether you’re a first-time buyer, an investor, or simply curious about the future of Canada’s housing sector, this comprehensive analysis will give you valuable insights.
Canada’s Housing Market in 2024: A Year of Mixed Signals
The housing market in Canada remained muted throughout most of 2024. After an optimistic start, the spring market failed to gain momentum, and the third quarter saw home prices either stagnate or decline across many regions. For much of the summer, sluggish buyer demand weighed heavily on sales volumes and home prices, with national prices experiencing a 1.1% quarter-over-quarter decline in Q3.
While home prices remained relatively flat, Royal LePage®’s third-quarter survey showed a modest year-over-year increase of 1.6%, pushing the national aggregate home price to $815,500. Despite this slight increase, many markets, including Toronto and Vancouver, saw price growth below the national average. These two key markets, which experienced the highest price inflation during the pandemic, continue to struggle with affordability issues, which has slowed their recovery.
However, there is light at the end of the tunnel. Experts now anticipate a housing market revival, which is expected to be fully realized in 2025. The coming months will be crucial for homebuyers, sellers, and investors to prepare for what is expected to be a more favorable market.
Interest Rate Cuts: A Catalyst for Recovery
Interest rates have been a major factor influencing the Canadian housing market over the past two years. With the Bank of Canada raising rates aggressively to combat inflation, borrowing costs soared, putting downward pressure on the housing market. This led to reduced affordability for first-time buyers and small investors, who have been particularly sensitive to interest rate increases.
However, in 2024, the BoC changed course, initiating three consecutive interest rate cuts. These cuts are part of a broader monetary easing strategy aimed at supporting the economy and boosting demand in key sectors, including housing. Lower interest rates have historically led to increased buyer demand, as mortgage costs decrease, making homeownership more attainable.
According to Phil Soper, president and CEO of Royal LePage, first-time homebuyers and small investors are the two groups most likely to benefit from these rate cuts. Soper notes that many potential buyers have adopted a “wait-and-see” approach, holding off on purchasing until rates fall further. With additional rate cuts likely in the coming months, this pent-up demand could unleash a wave of activity in early 2025, as buyers re-enter the market.
Regional Variations: Winners and Losers in the Recovery
While the overall Canadian housing market is showing signs of recovery, not all regions are experiencing the same level of resurgence. Just as the pandemic-era housing boom played out differently across the country, the current recovery is also uneven.
Toronto and Vancouver: Slow to Rebound
Toronto and Vancouver, Canada two largest and most expensive housing markets, have been slower to recover. Affordability remains a key issue in these cities, where high home prices have left many buyers priced out. In the third quarter of 2024, Toronto’s aggregate home price increased by just 0.7% year-over-year, while Vancouver saw a 0.5% rise. These modest gains are well below the national average, reflecting the affordability challenges in both cities.
Despite these challenges, there are signs of a turnaround in Toronto. Soper notes that buyer demand began to pick up in the fall of 2024, with sales volumes increasing. This uptick in activity suggests that Toronto may be on the verge of a more robust recovery heading into 2025. Vancouver, on the other hand, continues to lag behind, and it remains to be seen when the city will fully recover.
Quebec and the Prairies: Resilient Markets
While Toronto and Vancouver struggle to regain their footing, other regions of Canada have shown greater resilience. Quebec and the Prairie provinces have been standout performers, with home prices rising steadily despite the broader market slowdown.
In Quebec, the greater Montreal area saw a 5.2% year-over-year increase in home prices in the third quarter of 2024, while Quebec City recorded the highest price increase of any major market in Canada, with a 10.5% year-over-year rise. This strong performance can be attributed to lower home prices relative to other major markets and a steady influx of buyers who are less affected by rising interest rates.
Similarly, the Prairie provinces, particularly Alberta and Saskatchewan, have shown strong price growth. These markets benefit from a tight supply of homes and relatively affordable prices compared to larger cities. In the third quarter, tight inventory pushed prices upward in many Prairie markets, positioning these regions as attractive options for buyers seeking value.
New Mortgage Regulations: A Game Changer for First-Time Buyers
In addition to interest rate cuts, recent regulatory changes are expected to provide further support to Canada housing market. In a bid to boost homeownership, the federal government and the Office of the Superintendent of Financial Institutions (OSFI) have announced several key changes to mortgage lending rules.
30-Year Amortization for First-Time Buyers
One of the most significant changes is the introduction of a 30-year amortization period for first-time buyers and those purchasing new construction homes. This extended amortization period, set to take effect on December 15, 2024, will lower monthly mortgage payments, making homeownership more affordable for many buyers.
For first-time buyers, who have been particularly sensitive to rising interest rates, this change is expected to be a game changer. By extending the amortization period, the government is effectively reducing the barrier to entry for younger buyers, many of whom have been priced out of the market in recent years.
Increase in the Insured Mortgage Cap
Another major change is the increase in the insured mortgage cap from $1 million to $1.5 million. This change, which applies to buyers who are taking out insured mortgages, will provide greater flexibility for those purchasing homes in higher-priced markets such as Toronto and Vancouver. By raising the cap, the government is helping move-up buyers, who are looking to upgrade to larger or more expensive homes, to secure financing more easily.
Elimination of the Mortgage Stress Test for Renewals
Starting on November 21, 2024, the OSFI will eliminate the mortgage stress test for uninsured borrowers who are renewing their mortgages and switching lenders, provided they maintain the same loan amount and amortization schedule. This move is expected to increase competition among lenders, leading to more favorable terms for borrowers and ultimately lowering the cost of borrowing for many homeowners.
According to Soper, these changes are expected to have a significant impact on the housing market in 2025, particularly in the early months. The combination of lower interest rates and more flexible mortgage terms will likely lead to a surge in buyer activity, especially among first-time buyers and move-up buyers in higher-priced markets.
The Outlook for 2025: What to Expect in the Spring Market
As we look ahead to 2025, the outlook for Canada housing market appears increasingly optimistic. While the fourth quarter of 2024 is expected to remain relatively stable, experts anticipate a pull-ahead of the spring market, with buyer activity ramping up earlier than usual in response to continued interest rate cuts and the new mortgage regulations.
Price Appreciation Forecast
Royal LePage is forecasting a 5.5% year-over-year increase in the aggregate home price in the fourth quarter of 2024, compared to the same period in 2023. This marks a significant improvement over the sluggish price growth seen in the first half of the year. As interest rates continue to decline and buyer demand strengthens, we can expect further price appreciation in early 2025.
While price growth is likely to vary by region, markets in Quebec and the Prairies are expected to continue outperforming, while Toronto and Vancouver may see a more gradual recovery. However, as buyer demand picks up in these larger markets, price growth could accelerate, eliminating the advantages of waiting for buyers who have been sitting on the sidelines.
Increased Sales Volumes
In addition to price appreciation, we can expect a significant increase in sales volumes in 2025. With more favorable borrowing conditions and the new mortgage regulations in place, both first-time buyers and investors are likely to re-enter the market in large numbers. This pent-up demand, combined with improved affordability, will likely lead to a busy spring market, with activity levels surpassing those seen in 2024.
The Importance of Housing Supply
While the outlook for 2025 is positive, it’s important to note that Canada housing market still faces a fundamental challenge: a lack of supply. The country urgently needs more housing to meet the growing demand, particularly in major urban centers. As Soper notes, the recent regulatory changes and interest rate cuts are helpful, but they are not a silver bullet for solving the supply shortage.
Continued efforts to increase housing inventory, through new construction and policy measures, will be essential for ensuring a healthy and sustainable real estate market in the years to come.
Conclusion
Canada housing market is finally showing signs of recovery after a challenging 2024. With three consecutive interest rate cuts and new mortgage regulations set to take effect, the stage is set for a robust spring market in 2025. Buyers and investors who have been waiting for the right moment to enter the market may find that the coming months offer an ideal opportunity.
However, regional variations will persist, with markets like Toronto and Vancouver facing affordability challenges, while Quebec and the Prairie provinces continue to show resilience. Ultimately, the success of Canada housing market recovery will depend not only on interest rates and regulatory changes but also on addressing the ongoing supply shortage.
As we move into 2025, one thing is clear: the Canadian housing market is poised for a comeback, and those who are prepared to act may find themselves in an advantageous position as the market heats up once again.
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