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2025 Market Trends

The real estate market in 2025 is finally taking a breather after a few years of interest-rate-induced whiplash. With rates sliding downward, buyers are cautiously poking their heads out, sellers are feeling a tinge of FOMO for not cashing in sooner, and will investors be back to outbidding each other like it’s Black Friday for rental properties? This year’s trends are all about shifts—shifts in demand, shifts in strategy, and, in some cases, literal shifts in where people want to live. So, buckle up as we explore the market trends everyone’s watching in 2025. Spoiler: it’s not all doom and gloom; there’s even a glimmer of hope for first-time buyers. Maybe. 

Here is a sneak peak of the topics and trends expected to shape the market next year. 

 

Interest rate cut cycle  


After an aggressive monetary policy tightening cycle in 2022 and 2023, which pushed the overnight interest rate to 5%, the Bank of Canada (BoC) initiated a rate cutting cycle in June 2024, bringing the interest rate down to 3.25% as of today. With current inflation data aligned with BoC’s 2-3% target, further rate cuts are expected in 2025. We forecast a more moderate pace of 0.25% reductions for the first four policy interest rate announcements next year. Mark your calendars for the BoC’s interest rate announcements: January 29th, March 12th, April 16th and June 4th.  

 

Possible Price Rebound 


As a result of the interest rate tightening cycle during 2022-2023 and surging home prices during COVID, the market activity and overall volume of transactions after the pandemic decreased considerably in all the major markets in Canada except for Calgary and area, which showed resilience thanks to strong interprovincial and international migration.  However, 2025 is poised to tell a different story based on a combination of factors that could potentially reactivate the residential market across the board and produce a price rebound. An interest rate easing cycle that could boost spending and investment, new federal policies extending the amortization periods for first time home buyers and the accumulated savings of buyers who stayed on the sidelines for a couple of years due to the uncertainty that permeate the real estate market, are some of the reasons  to expect a potential price rebound on all major market in Canada.  There will be a few exceptions of some niches such as the pre-constructions that could take longer to recover.  

 

Renewals Wave 


Next year will see a significant wave of mortgage renewals, keeping lenders and appraisers busy. According to RBC’s estimation, about 55 per cent of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years and 85 per cent in the next three years. Homeowners who locked in at historically low rates in 2020-2021 are now facing a mortgage shock that could spark to a mortgage war in 2025-2026, given a greater incentive for homeowners and investor to shop around for the best interest rate. In addition, the decision about renewing with a variable or fix mortgage would be a topic of interest to follow. While variable rates remain higher than fixed rates today, anticipated interest rate cuts in 2025 could make variable mortgages more appealing. Fixed rates, tied to government bond yields, may prove slower to adjust, making this an area of interest for mortgage holders and mortgage brokers alike.  

 

Affordability Challenges Persist 


Despite interest rate cuts, government initiatives to increase construction starts and purpose-built rentals, and a range of new policy incentives for first-time homebuyers, housing affordability remains a pressing issue in 2025 and continues to pose significant challenges for Canada's real estate market. Giving the magnitude of the affordability crisis, it is expected that meaningful improvements will take until 2026-2027 to begin to materialize as these measures gradually take effect. Until then, affordability will remain a central issue for buyers, builders, lenders and policymakers alike.    

 

The Rise of ADUs (Accessory Dwelling Units) 


Several federal and provincial policies have eased regulations to encourage the development of accessory dwelling units (ADU), coach houses and laneway homes. A limited residential inventory and the structural challenges to boost new constructions given the lack of labour and the excess of red tape, makes the ADUs a relevant topic for 2025 since it could have a positive impact for borrowers that could benefit from some extra rental income and for the cities that have an urgent need to increase housing density without large-scale developments. Programs such as the secondary suite loan program and the updates introduced by the Bill 23, are good starting points for those considering or interested in building an accessory dwelling unit.  

 

The Canadian real estate market in 2025 will be shaped by further rate cuts, potential price rebounds, affordability challenges, a wave of renewals and the rise of innovative housing solutions like ADUs. As we welcome the new year, one thing is clear:  Staying informed about these trends will empower you to make sound decisions and take advantage of the opportunities that the shifting Canadian real estate landscape present.  

 

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