Real Estate Market Overview in 2025
The Canadian housing market in 2025 is expected to rebound, driven by lower mortgage rates and changes to mortgage rules that unlock pent-up demand. However, the recovery will be uneven, with some regions and market segments performing better than others. Economic uncertainty, including potential trade policy changes and shifts in immigration, adds complexity to the outlook.
Economic Factors
Several economic factors shape the housing market in 2025:
U.S. Trade Policies: Potential tariffs on Canadian exports to the U.S. could significantly impact Canada's economy, leading to investment uncertainty, a weaker Canadian dollar, lower export revenues, job losses, higher inflation, and a greater risk of recession.
Immigration Levels: Reduced immigration targets for 2025-2027 will likely result in slower population growth and lower economic activity.
Consumer Spending: Consumer spending per capita is expected to increase, supported by lower borrowing costs. However, past inflation, rising unemployment rates in 2025, and higher interest rates on mortgage renewals may slow growth.
Business Investment: Canadian business investment is anticipated to rebound due to lower interest rates, but trade tariffs, rising wage pressures, and tighter lending conditions could limit this recovery.
Monetary Policy: The central bank is expected to further cut rates in 2025 to control inflation and support the economy. Variable-rate mortgages are expected to see bigger reductions, making them attractive to homebuyers.
These factors create a mixed economic outlook, with slower population growth and economic challenges limiting housing activity, while improved buying power boosts activity in the short term.
Housing Market Dynamics
Increased Demand: Lower mortgage rates and changes to mortgage rules are expected to release pent-up demand from homebuyers. Millennials, particularly first-time buyers, are driving this demand, prioritizing proximity to jobs as remote work declines. Repeat homebuyers, including those upgrading or facing mortgage renewals, are also expected to return to the market.
Resale vs. New Homes: Resale homes are expected to attract a larger share of demand due to more options for financially constrained buyers. The length of new construction projects may limit developers' ability to meet demand quickly.
Uneven Recovery: The condominium apartment market is expected to lag, especially in regions dependent on investor activity. Rising costs and softening rental markets are prompting investors to sell. Ground-oriented homes are expected to see renewed demand.
Affordability: Housing markets in Ontario and British Columbia are particularly unaffordable, leading to sales remaining below their 10-year averages. Alberta and Quebec, being more affordable, are expected to see sales reach historically high levels.
Housing Starts: Housing starts are set to slow down, remaining above their 10-year average, mainly due to fewer condominium apartments being built. Rental apartment construction is expected to remain high through 2025-2026, potentially slowing in 2027. Ground-oriented home construction is expected to recover slightly, led by lower-priced options.
Regional Insights
Ontario: New construction is expected to slow down as of 2025 due to lower demand for pre-construction condominium apartments.
British Columbia: The slowdown in condominium apartment construction will be milder and delayed due to fewer investors and stronger resale markets.
Alberta: The impact on new construction will be minimal because more buyers are actual residents rather than investors.
Rental Market
Rental markets are expected to continue rebalancing, with supply growing faster than new demand. Lower immigration and an increase in first-time homebuyers are expected to reduce rental demand throughout 2025-2027. Vacancy rates may increase and rent increases may slow, but rental affordability will take more time to improve.
Alternative Scenarios
To account for economic uncertainty, two alternative scenarios are considered:
Low-Growth Scenario: Higher U.S. tariffs cause job losses and a recession in 2025, delaying housing recovery and increasing pent-up demand. Rental markets stay tight, limiting improvements in rental affordability.
·High-Growth Scenario: Fewer U.S. tariffs and stronger U.S. government spending boost Canadian exports, leading to stronger job and income growth and more accessible homeownership. Higher demand pushes home prices up more quickly.
