Canadian Housing Market Predictions 2025

After a challenging start to 2024, marked by high interest rates and uncertain property valuations, the Canadian real estate market is entering 2025 with cautious optimism.

In fact, 2025 could mark the beginning of a new cycle in the Canadian real estate market as we saw the highest sales levels in October 2024 since the boom market of 2022.

Affordability challenges persist in the Canadian housing market, but declining mortgage rates & borrowing costs, new government policies, a commercial rebound, and a growing, yet aging, population are all setting the stage for a year of strong market activity.

Here are 10 factors shaping housing market predictions in Canada for 2025 - including a new price forecast from the Canadian Real Estate Association and interest rate analysis by Vantage West Realty.

1. Lower Interest Rates & Supply Boosting Sales

After aggressive interest rate hikes peaking at 5% in 2023, the Bank of Canada lowered the prime rate to 3.75% in Oct. 2024, then to 3.25% in Dec. 2024.

With an inflation rate of 2% in Oct. 2024 and the BoC’s inflation target of 1 to 3%, we saw rates come down by a half percent at the most recent interest rate announcement (Wednesday, December 11, 2024)

So long as we don’t see a sudden roar in inflation, we can expect the prime rate to continue meandering its way to 3%.

More affordable lending rates have boosted home sales across Canada — especially in urban centres like Toronto, where November 2024 home sales increased 40.1% YoY and Vancouver, where Nov sales increased 28% YoY.

With the yield curve for Canada Government Bonds sloping downwards until 5Y maturity, the market is showing confidence that rates will continue to decline to 3% in 2025.

Canada Housing Market Price Forecast 2025

The CREA forecasts that national home sales in Canada will rise 6.6% to 500K units in 2025.

House prices are expected to rise 6% in 2025 to an aggregate price of $857K, while single-family detached homes are forecasted to rise 7% to $900K, according to the Market Survey Forecast by Royal LePage.

We can expect to see a strong rebound in sales in the busy spring season now that the prime rate has declined to 3.25% with room to go lower.

2. More Supply, More Choices & More Activity

Compared to 2 years ago, shopping for a house is a lot more enjoyable and a far cry from the mad rush of the 2021-2022 pandemic market.

With housing inventory climbing across the country, Canadian buyers who have been sidelined due to cost or desirability concerns can now find affordable housing that actually fits their needs, wants, and nice to have's.

In BC, MLS® Active Listings jumped to ~40,000 across BC and 5,862 in the Okanagan, a +25% Y/Y increase.

Home Sales in Canada increased to 43.3k units per month in October 2024 from a low of 33.5k in January 2023.

Canada is seeing a Q4 rebound occur already as the CREA reported 30% more sales, 7.4% more listings, and 6.1% higher prices (year-over-year) in their October 2024 Housing Market Snapshot.

Heading into 2025, buyers are coming off of the sidelines now that they have time to find a home they truly want, spend time on home inspections and contingencies, and negotiate themselves a great deal.

Across Canada, new home construction hit a near record high during the first half of 2024 with 68,639 units — the highest level since 1990. However, markets like Metro Vancouver, the Greater Toronto Area, and Ottawa, saw housing starts decline by 10 to 20%.

3. Mortgage Insurance Cap Increase to $1.5M

Starting on December 15th, 2024, the insured mortgage cap is set to increase to $1.5 million for properties bought with a down payment of less than 20%, which will expand access to higher-value properties.

Combined with the fact that first-time homebuyers can now extend their mortgage amortizations to 30 years for new builds, we can expect to see an increase in sales in the $1 to $2M range due to this new borrowing capacity.

With more demand, the benchmark house price (single family detached) in the Okanagan Valley is expected to increase from the $1M mark.

4. Signs of Stress in the Big Condo Markets

The condo markets in the Greater Vancouver and Toronto areas are some of the first places to see exuberance during a bull cycle like we saw from 2020 to 2022.

As we head into 2025, we’re starting to see stress on both the demand and supply side of Canada’s largest condo markets.

Lenders are becoming far more cautious with new development loans as inventories pile up in major markets. In the GTA and Hamilton, unsold condo units reached a record high of 25,893 units in mid-2024, according to PWC’s 2025 Emerging Trends in Real Estate report.

In Kelowna, we’ve seen 2 major projects paused due to financial pressures where developers enter into forbearance agreements aiming to negotiate new credit terms.

5. Rising Sales Volumes in BC and the Okanagan

In the Central Okanagan, November 2024 witnessed a massive increase in home sales volumes year-over-year, with the Association of Interior Realtors reporting increases across the board in their data release:

• Single family sales up +15% (123)

• Townhouse sales up 47% (50)

• Condo sales up 58% (98)

BC Real Estate Association (BCREA) predicts that British Columbia will see an increase in home sales in 2025, with a ~13% increase province-wide and a ~7% increase in the Okanagan Valley.

Population effects like family home purchases from the millennials & gen Z, along with baby boomers downsizing into smaller homes or 55 plus & retirement communities could be the strongest drivers of residential sales activity in 2025.

In the Central Okanagan, we’re in a balanced market with around 2 months of inventory, while the median price was $800k in the third quarter of 2024.

Sellers can expect shrewd negotiations and pickier buyers who have slightly larger budgets due to lower mortgage rates and new policy changes.

6. Purpose-Built Rentals Gain Traction

In an attempt to create vacancy and put a damper on rental price growth, purpose-built rentals have gained the favor of municipalities across Canada.

Stats Canada reported record high rental completions of 217.6 in 2023 — 2.7X higher than a decade earlier.

In 2025, tenants will have more options to choose from in urban centres when these new rental only housing developments come online.

The increase in supply should put some downward pressure on rental prices, but with immigration and declining homeownership rates, rental demand remains strong across Canada — which means any price alleviation could be short lived.

7. Insolvencies & Distressed Sales

According to PWC, real estate insolvencies are up 51% year-over-year for June 2024.

We’ve witnessed a wave of commercial receiverships and insolvencies as lending costs soared over the last 2 years.

In some cases, overleveraged property developers have to wait in forbearance to restructure their debt to more affordable levels.

In other cases, lenders are buying out the developers and taking on the project themselves.

In the right markets, savvy commercial buyers should be able to find good opportunities for distressed real estate investments in 2025.

If inflation kicks up and interest rates do not decline to 3% as many are expecting, some fixed rate mortgage holders in Canada may face financial challenges heading into late 2025 and 2026 as their 5-year rates roll over, leading to higher monthly payments.

8. Opportunities in Commercial Real Estate

With more confidence that rates will stay lower, commercial real estate saw a major rebound in 2024.

While commercial real estate faced challenges in 2023-24 as investors lowered their risk appetites compared to 2020-22, sectors like retail, warehousing, and e-commerce are seeing steady demand.

Many US equity REITs trading at a discount vs their net asset values, with the largest discounts in the hotel sector.

Interest in commercial real estate projects varies wildly by category. According to Altus Group’s Q3 sentiment survey, commercial investors in Canada believe retail was fairly priced in Q3 2024, while industrial, multifamily, and single-family were all overpriced.

Large real estate projects that do get approval in the US & Canada are seeing longer delays in underwriting loans: 4 months vs 1 to 2 months, according to PWC.

With further rate cuts potentially leading to lower costs of capital, we could see more revitalization in commercial real estate in 2025, especially in retail.

9. Increased Demand for Real Estate Professionals

B.C.’s real estate sector is looking at new challenges in the coming years due to aging workers, retirements, and increased housing demand driven by population growth.

A report by Rennie Advisory Services for the Real Estate Institute of B.C. predicts 52% new growth in job recruitment in the real sector, estimating the need for 18K additional workers annually in real estate conveyance and 72K in development to address demand pressures.

What 2025 Means for Buyers and Sellers

2025 is presenting a mix of unique opportunities and challenges in Canadian real estate.

Stabilizing interest rates are making it easier for buyers to find a property within budget, while a wave of new sellers and completed new housing developments are offering buyers more choice than years past.

Vantage West Realty | Kelowna Real Estate Experts

Buying or selling in the Okanagan Valley, or looking to join an award-winning team of real estate professionals?

Vantage West Realty is a Kelowna-based real estate and property management firm run by a team of professionals who are real estate investors, homeowners, and renters alike.

With a first-hand understanding of market dynamics and the challenges facing real estate in 2025, we can help you make the most of your opportunities, whether you’re buying, selling, or investing.

Let’s work together to achieve your real estate goals.