by Mo Monsef 
If you are considering buying, it is time to get busy. Today is an opportunity that will look cheap a year from now
Last year, I confidently predicted that the Bank of Canada would reduce interest rates by two percent, positioning it as a central theme for 2024. As events unfolded, my forecast was largely accurate, with rates declining by 1.75 percent. Looking ahead to 2025, the central bank still has some room for further rate reductions, though most of the adjustments have already been implemented.
This brings us to the defining trend of 2025: the robust resurgence of residential real estate. Specifically, single-family detached homes are set to lead this recovery, excluding condominiums. I anticipate a remarkable 10 percent year-over-year increase in prices from 2024 to 2025. Here are the top five factors driving this growth.
Delayed Purchases Have Created Pent-Up Demand
Home-buying follows a natural life cycle, akin to human behavior. In Canada, once individuals manage to save a significant amount of money—typically between $100,000 and $300,000, depending on the market—there is a cultural expectation that they will purchase a home.
Although the economy has faced some challenges, new potential buyers are continually entering this group. Once they have the financial means, they are ready to purchase, but other factors need to align. As you will see below, those factors are beginning to come together.
In 2019, residential sales activity across Canada hovered around 500,000 units, according to the Canadian Real Estate Association. This number surged to between 600,000 and 750,000 units during the COVID-19 real estate boom, from the first quarter of 2020 to early 2022. However, sales then fell back to the 450,000 range over the past two and a half years, even as the population continued to grow.
Many believed that as mortgage rates began to drop, housing demand would rise swiftly. However, demand has instead been building up over time, waiting for the right moment. Today, that backlog is substantial, providing a solid foundation for growth in 2025.
Increase in Price Cap on Insured Mortgages
The recent rise in the price cap for insured housing to $1.5 million, along with 30-year amortizations for first-time homebuyers and new construction projects, marks a significant shift, starting this month.
In major markets like Toronto and Vancouver, there has been a scarcity of homes priced under $1 million, making insured mortgages unattainable for many. However, with the new cap set at $1.5 million (effective December 15), after several years of stagnant and declining house prices, a larger portion of entry-level homes now qualifies for insurance.
This change allows buyers to secure mortgages with as little as a 5% down payment, while also accessing lower rates on insured mortgages.
Currently, a five-year fixed-rate insured mortgage is available at approximately 4.15%, which is about 0.35 percentage points lower than the rates for uninsured mortgages.
When considering this, potential buyers find themselves needing to save less money upfront and facing smaller monthly payments, easing their financial strain. Whether this is a prudent decision is up for debate, but historically, Canadians have shown that if the bank is willing to lend, they are ready to borrow.
Lower Mortgage Rates
When mortgage rates began to decline, many buyers were hopeful, but then the question arose: If rates are still falling, why rush in? Why not wait for an even lower rate? This thinking prevailed throughout much of 2024.
While I expect to see further decreases in variable rates and slight drops in fixed rates, we are likely nearing the bottom. In an inflationary environment, inspired by figures like Donald Trump, waiting too long could mean missing the best moment to act. Prices peaked at $835,000 in February 2022 before dropping 13.9% to $719,000 by December 2022. As of November 2024, prices have stabilized, sitting at $723,000, a slight increase from $716,000 in May 2024.
I believe the market has already bottomed out. Waiting for a better deal might not be wise today. Once prices start to rise, demand could surge quickly, especially with pent-up demand already in place. I believe we are at that point now.
It’s time to take action. Along with recent changes to mortgage insurability, this is likely to spur more buying activity, particularly among first-time homebuyers.
House Price Declines Have Stopped
This is the main story: Why buy today if prices are expected to drop tomorrow? This strategy has worked for over two years.
In December 2019, the national average home price in Canada was $535,000, according to data from the Canadian Real Estate Association. After the initial months of the COVID-19 pandemic, prices soared to $604,000 in December 2020, reflecting a 12.9% increase. In 2021, prices jumped even further, rising 28.5%.
High Immigration Rates Didn’t Slow Down Housing Demand
The demand for housing from new Canadians is substantial. Immigration targets for 2024 are set to peak at 500,000, with the government aiming for 395,000 newcomers in 2025. Throughout most of the previous decade, immigration levels ranged from the high 200,000s to low 300,000s.
However, following the COVID-19 pandemic, immigration surged to 493,000 for the 12-month period covering parts of 2021 and 2022, and 468,000 the following year. This represents significant growth compared to earlier periods, and all these newcomers need places to live. While this influx includes many people looking for rental properties, a portion of them are also in the market to buy homes. Much of this population growth occurred after the peak in home prices in February 2022.
I have not focused on condominiums in this section, as this trend may be more relevant to Toronto than other markets. Due to the level of real estate investment in condominiums—often by investors rather than owner-occupiers—there has historically been a higher risk of property owners being forced to sell if the economics no longer worked in their favor.
This situation has unfolded, and there continues to be a backlog of sellers in the condominium market. This will likely result in a prolonged period of flat or declining prices until the excess of investors exits the market.
Turning to single-family detached homes, the factors mentioned earlier suggest a swift recovery in prices. I foresee price growth similar to the 2015-2016 period, when prices increased by 10.6% and 15.8%, respectively, but with additional momentum from higher immigration.
Altogether, this is likely to drive a 10% national price increase in the housing market.
Those with financial means will continue to seek homeownership as part of the Canadian tradition. This does not include non-permanent residents, now numbering over three million, according to Statistics Canada—600,000 more than just a year ago.
