It’s been a rough few years for Canadians looking to break into home ownership as unaffordability issues persist across the country.
But as the calendar turns over to 2025, some prospective buyers might find an opportunity through changes in mortgage rules and lower borrowing costs, while some pockets of the Canadian housing market see competition — and prices — heat up.
“First-time homebuyers are going to return to the market, I think, in a big way,” Re/Max Canada president Christopher Alexander told Global News.
“And we should expect to see a much more robust year for sales as well.”
Mortgage changes should make buying easier
One of the big changes that could give homebuying a lift in the new year took effect in late 2024: Ottawa’s moves to expand the availability of insured mortgages and 30-year amortizations.
Now, first-time homebuyers or those purchasing a newly built home (with plans to live there) can take out a mortgage to be paid back over 30 years, rather than the typical 25. The buyer will likely end up paying more in interest costs over the lifetime of the loan, but qualifying for the mortgage will be a bit easier and monthly payments should be a bit more manageable.
The other change sees the price cap for taking out an insured mortgage rise to $1.5 million, up from the previous $1 million. This is significant because insured mortgages allow would-be homebuyers to put less than 20 per cent down on a property upfront, reducing the need to save in advance of the purchase for homes valued at up to $1.5 million.
Elliott Chun, a Realtor with Partners Real Estate in Vancouver, told Global News this month that the new rules are a “game changer” for buyers in his local market, where many homes fall within the new price limits for insured mortgages.
Instead of having to put $300,000 down to get a mortgage on a home worth $1.5 million, for example, the new rules could see a buyer put down as little as $125,000 — shaving months of saving off a would-be buyer’s timeline.
For young buyers who are hoping to break into a more expensive city like Vancouver, Chun said that the new mortgage rules are giving those who would previously have been limited to buying a condo the ability to purchase a townhome with enough beds for a growing family.
“It’s really unlocking that door,” Chun said.
Some experts have also warned that opening a new tier of homes to prospective buyers will drive prices higher, offsetting any short-term affordability boosts.
There are other mortgage changes that could affect the qualifying formula for existing owners.
The Office of the Superintendent of Financial Institutions (OSFI) announced in late 2024 that Canadians renewing an uninsured mortgage won’t have to pass the minimum qualifying rate, or stress test, on straight switches of lenders at renewal. The move aims to boost competition by making it easier for Canadians to switch who’s holding their mortgage and encouraging lenders to compete with better rates.
The Bank of Canada rate outlook
The Bank of Canada’s benchmark interest rate has been one of the biggest hurdles for would-be homebuyers in recent years, but 2024 marked a turning point in borrowing costs.
The central bank trimmed its policy rate five times last year, with most economists expecting more cuts to come in 2025, if at a somewhat slower pace.
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But John Pasalis, president of Realosophy Realty in Toronto, told Global News that buyers shouldn’t expect much more relief in fixed mortgage rates this year.
Fixed mortgage rates are mostly priced by the bond market, which essentially makes bets on where the Bank of Canada’s policy rate is heading over the next two to five years.
Unless the central bank cuts more steeply than the couple of quarter-point cuts already priced into the markets, Pasalis warned that fixed mortgages likely won’t drop much further below the mid-to-low four per cent range where they’re currently settling.
He added that variable interest rates, which are tied more directly to the Bank of Canada’s decisions, will continue to fall into the new year. But with those rates still above their fixed counterparts in the market, variable options won’t be offering much of a discount either in 2025.
“What you’re actually paying on your mortgage will not change that much … I don’t think we’re going to see a huge difference,” Pasalis said.
He also warned that there hasn’t been much give in home values since 2025, limiting the overall affordability in the market.
“House prices are still high, even when you’re paying four per cent on your mortgage.”
How much will home prices climb in 2025?
Alexander added that there might be a psychological impact from the Bank of Canada’s interest rates on how busy the 2025 housing market ends up being. He said that with Canadians expecting more interest rate cuts from the central bank this year, they might hold to the sidelines a little longer in hopes of eking out the lowest possible mortgage rate they can get before signing on the dotted line.
“That’s a tricky place to be because the more rates come down, the more competitive the market will get,” Alexander said. “And there will come a stage where it gets competitive again. Available inventory will start to dry up and we will see upward pressure again on pricing.”
Re/Max Canada’s 2025 housing outlook released in late November projected a six per cent jump in average home prices this year.
For the single-family detached market, prices are expected to rise 7.0 per cent annually to just over $900,000. Condos meanwhile are forecast to increase 3.5 per cent year-over-year to $605,993.
Pasalis said that those looking for condos in 2025 are likely to have a better time than those seeking single detached. That’s because the bulk of housing completions coming to the market in the next few years will be condo properties, while inventory and demand is expected to remain tight for detached homes.
“First-time buyers looking at buying a condominium may have way more options today than they had even a couple of years ago. So that might be an avenue going forward,” he said.
Ottawa’s plans to clamp down on immigration levels for the next two years is also largely expected to put some more downward pressure on rents in Canada’s biggest cities, but Pasalis notes this could trickle down to the condo market as well.
As landlords find they’re unable to ramp up their cash flow to offset high mortgage costs, they could be motivated to sell their condo units, putting even more supply out in an already soft market, he argued.
“That is going to be eating into our housing shortage, which in theory should put a little bit of downward pressure on rents and potentially home prices over the next year or so,” Pasalis said.
How busy will the 2025 housing market be?
How competitive Canada’s housing market ends up being heading into the traditionally busy spring season might come down to how well the Canadian households hold up financially.
Canada’s economy has been sluggish heading into 2025, and uncertainty around threatened trade disputes with the United States are among the major risks that could see the country’s economic prospects — and by extension, Canadian jobs — take a hit in the new year.
If layoffs were to pick up and Canada’s unemployment rate continues to rise, that would limit any potential rebound in housing activity, Alexander noted.
While he expects a stronger pace of activity than in 2024, he warned not to expect a surge like that seen in the early days of the COVID-19 pandemic as Canadians continue to face affordability challenges.
Even with the Bank of Canada’s recent rate cuts, a significant portion of Canadian mortgage rates are expected to renew into higher rates in 2025. Pasalis said that while he doesn’t expect any widespread “fire sale” of homes as most households adjust to the discomfort of higher costs, the more Canadians pay on their mortgages, the less they have to spend elsewhere, which could drag down economic growth in turn.
“Canadians are used to the market booming or the market just being dead and/or tanking,” Pasalis said. “And I don’t know if it’s going to be either. We might just be a very boring, flat market for the next little while.”
Back in Vancouver, Chun expects new mortgage rules and a modest improvement in affordability conditions will translate to a busy spring. Heading into the end of 2024, he was noticing more calls from clients keen to take advantage of more accessible mortgages now that the math is looking a bit rosier than in recent years.
“There’s a feeling of optimism for the new year,” he said.
Will it be easier or harder for Canadians to buy a home in 2025?
