3 Things to Know About the 2025 Housing Market

If the late-2024 rebound in home sales is any indication, 2025 could be the year the Canadian real estate market gets back on its feet.

Whether it staggers or sprints is the $2 trillion question.

The reasons for optimism are clear: falling interest rates and relaxed mortgage regulations will make buying a home more attainable, and should drive sales to some extent.

Lower immigration targets, however, could dampen demand, while U.S. President-elect Donald Trump’s proposed 25% tariffs on Canadian goods could result in job losses among home buyers and homeowners.

Let’s dig into these topics (and several others) to prepare you for buying a house in 2025.

Lower mortgage rates: A lift for some

Rate cuts will open the door to homeownership wider for many buyers, but not all will squeeze through.

Variable mortgage rates will drift lower as the Bank of Canada hacks away at the overnight rate. If the Bank halts its cuts at the mid-point of the “neutral rate”, the range in which it’s neither stimulating nor throttling the economy, the overnight rate will settle at 2.75%. In this scenario, today’s lowest variable rates would dip to around 3.8%, which should spark demand.

But affording a home depends on more than just agreeable rates. Canadians are sitting on a mountain of non-mortgage debt — averaging almost $26,000 per person in the third quarter of 2024, according to TransUnion — which could wreak havoc with debt service ratios.

The high cost of living provides its own set of roadblocks, too.

“Yes, rates are coming down, but food prices are still sky high. Rents have gone up. Car payments, insurance, land transfer tax in Toronto — all of those things add up,” says Christopher Alexander, president of Re/Max Canada.

Alexander still expects home sales to rebound in 2025, but he feels lower rates will be more of a benefit for buyers in less expensive markets.

“If you’re outside Ontario and British Columbia, there’s a lot of great opportunities that are totally manageable,” he says.

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Big markets, smaller down payments

Buyers struggling to save down payments in B.C. and Ontario could get a serious leg up on December 15, 2024, when Canada’s insured mortgage limit increases from $1 million to $1.5 million.

Once the new limit kicks in, homes priced between $1 million and $1.5 million will no longer require a 20% down payment. On a $1 million home, for example, the minimum down payment will fall from $200,000 to $75,000.

With some estimates saying it could take renters in Vancouver and the GTA more than 30 years to save a viable down payment under the country’s current mortgage guidelines, the new insured mortgage cap sounds like a game-changer. But who’ll be able to afford the payments?

Tracy Gomes, senior vice president of real estate secured lending at Scotiabank, lays out a stark example using a $1.5 million home and a $125,000 down payment.

“At today’s rates, you’d have to have over $250,000 in household income, and that would be a monthly payment over $6,500,” she says.

And that’s if a buyer took advantage of a 30-year amortization, another new option being introduced for first-time and new construction home buyers on December 15. A 25-year amortization would generate payments of over $7,500 a month in Gomes’ scenario.

“There aren’t that many people who earn enough money to justify a $1.2 million mortgage,” says Dan Eisner, CEO of Calgary-based brokerage True North Mortgage. “So I don’t think [the insured mortgage limit] will be that big a deal.”

Slowing immigration: Any impact on home prices?

The federal government plans to reduce permanent resident admissions to 395,000 in 2025, significantly fewer than the 485,000 newcomers targeted for admission in 2024.

Despite the reduction, Alexander doesn’t expect next year’s immigration figures to impact the market.

“It’s always a lagging indicator, so whatever the immigration numbers are in a given year, you have to factor that in for three years down the road for the housing market,” he says.

Because new arrivals often rent before they buy, it might be investors who hold off on purchases in 2025, Kevin Fettig, president of CMI Financial Group, a Canadian private mortgage lending and investment company, said in an email.

“Investors won’t be able to count on rising prices and rents, which should temper demand for condominiums and housing targeting student rentals,” Fettig said.

Even if some investors and permanent residents are removed from the equation, there should be enough demand among Canadian home buyers to put upward pressure on prices next year. The Canadian Real Estate Association expects the average home price to increase by 4.4% in 2025.

Trump tariffs: The wildcard

If Donald Trump’s 25% tariff on all Canadian items exported to the U.S. comes to fruition, the results could be catastrophic, particularly for the country’s oil, mining and automotive sectors.

The Canadian Chamber of Commerce estimates the hit to Canada’s economy could reach $78 billion, or 2.6% of GDP. The result could be up to 150,000 job losses by the end of 2025, according to Oxford Economics.

According to Fettig, Canada has two choices: resist retaliating or launch tariffs of its own. Neither would be good for the housing market.

“The first scenario leads to potentially lower mortgage rates but higher potential default rates. The second scenario is bad for both homebuyers and homeowners – higher rates and even higher default rates,” he said.

Quick hits

Condo buyers, take a long view. Alexander: “I think condos are the best opportunity for a buyer right now…You’re going to have to have pretty thick skin in the short term, but long term, I think it’s a really, really good investment opportunity.”
Homeowners will absorb pricier renewals. Eisner: “I don’t see anything happening that’s going to significantly drive up arrears rates all at once…You’re not going to get this wave of foreclosures and everything else.”
All told, expect more competition. Gomes: “Any time borrowing criteria eases up, buyers jump in and there’s that feeling of urgency and that creates seller’s market conditions. I expect some of that, especially as we get into the spring season.”