Housing market poised for 2025 comeback as lower rates unleash pent-up demand

Canada's housing market is set for a significant rebound in 2025, driven by lower interest rates and pent-up demand from buyers. The Canadian Real Estate Association (CREA) reported a 26% year-over-year increase in home sales for November, marking the second consecutive month of such gains. This surge is largely attributed to the Bank of Canada's decision to reduce its policy rate by a total of 1.75 percentage points since June, bringing it down to 3.25%.

Re/Max Canada President Christopher Alexander noted that first-time homebuyers are re-entering the market, anticipating further rate decreases. He expects a more robust year in terms of activity and consumer confidence. Re/Max's 2025 housing market outlook predicts home sales will rise in 33 out of 37 Canadian regions, with national average residential prices increasing by 5%.

Economist Rishi Sondhi from TD Bank forecasts a 16% rise in home sales across Canada in 2025, along with an 8% increase in average home prices. He attributes this to falling interest rates, continued economic growth, and recent federal measures aimed at supporting the housing market.

Despite the positive outlook, affordability remains a concern. A Reuters poll indicated that, even with multiple interest rate cuts, home prices in Canada are expected to see only modest increases due to subdued demand. Analysts predict a 1% rise in home prices for 2024, followed by 2.8% in 2025 and 3.0% in 2026. Affordability challenges may limit demand, especially in pricier markets.

Supply constraints also pose challenges. Shaun Cathcart, CREA's senior economist, mentioned that the drop in December home sales was more related to supply issues rather than a lack of demand. An increase in property listings is anticipated in spring 2025, which could help balance the market.

In summary, while the Canadian housing market is poised for a comeback in 2025 due to lower interest rates and pent-up demand, factors like affordability and supply constraints will continue to influence its trajectory. Potential buyers and investors should stay informed about these dynamics as the year progresses.