2025 real estate predictions: what’s in store?

Expect freehold prices to rise by 5-7%, with semi-detached homes increasing by 7-10% by year-end. Why?

CMHC’s New Rule: Buyers can now put down just 10% on homes up to $1.5 million, making semi-detached homes and townhouses far more accessible to a broader range of buyers.

Tight Inventory: Freehold supply remains scarce. Detached homes hovered at 2.5-3 months of inventory in 2024, while semi-detached homes were as low as 1.5 months. This lack of options will continue to push prices higher.

No New Freeholds: Large-scale freehold developments are a thing of the past, leaving only small infill projects that can’t keep up with demand. Scarcity is driving value.

Rate Cuts Boost Demand: Falling interest rates are increasing affordability, especially those priced under $1.5 million, but also for higher-end freeholds priced between $1.5-$2.3 million, where buyers are likely to stretch their budgets.

With rates trending down, even higher-end freeholds and luxury properties could see renewed interest. This could be the year we see buyers stretching their budgets to secure these properties.

Landlords, brace yourselves: rents in the downtown core could drop by 5%, and the 905 might see declines of 7-10%. Here’s why:

Immigration numbers are projected to reverse, with reports suggesting up to 4 million people could leave Canada next year. Temporary residents—like international students and foreign workers—make up over 50% of rental demand, so a decline in this group will hit the market hard.

The GTA is set to see a record 40,000 condo completions, nearly double the typical yearly average. Most of these are in the 905, flooding the rental market with inventory and creating competition for landlords.

For renters, this means more options and better deals. For landlords, keeping your current tenants happy will be critical—consider offering incentives or small upgrades to retain them.

Condo prices are expected to rise 2-5% in the 416 but decline 5-7% in the 905 due to the following factors:

Interest Rates and Affordability: As rates come down, more buyers will return to the market, particularly in the 416, where condos remain the most affordable option for entry-level buyers. Urban condos close to transit and job centers are well-positioned to absorb this renewed demand.

Oversupply in the 905: The 40,000 new condo completions expected in 2025 will disproportionately impact the 905, where demand is softer. This glut of inventory, combined with weakening rental demand, will drive prices lower.

Shift Toward Livable Units: Buyers and renters are moving away from smaller, investor-focused units, favoring condos with functional layouts and family-friendly features. Properties designed for actual living—spacious units with good amenities—will outperform smaller "shoebox" condos, particularly in oversupplied markets like the 905.

While the 905 market faces headwinds, the 416’s urban appeal and affordability should keep it relatively resilient, with modest price growth expected. However, not all condos are created equal—livability and location will play a big role in which units hold their value.

With pre-construction condo sales faltering, developers are pivoting to purpose-built rentals in 2025. This shift reflects both the challenges facing the pre-construction market and the long-term need for more rental housing. Here's what’s driving the change:

Investor Demand Has Plummeted: High interest rates, tighter lending rules, and falling rents have pushed many investors out of the market. Defaults are rising as buyers who purchased at market peaks are now unable to close due to stricter appraisals and higher financing costs.

Wave of Defaults: Many pre-construction buyers face significant financial losses, with some developers expected to sue for the difference in value between the original sale price and today’s lower appraisals. This will be a key storyline in 2025 and could further weaken investor confidence.

The Pivot to Rentals: Developers are adapting by focusing on purpose-built rental housing, which offers more stable long-term revenue and aligns with ongoing rental demand.

Purpose-built rentals are not just a response to a struggling pre-construction market; they’re a critical part of addressing the GTA’s ongoing housing crisis. Expect more developers to follow this path in 2025, with a stronger emphasis on creating housing that meets real-world needs.

The Bank of Canada is expected to begin cutting rates tomorrow with a 25 basis point (0.25%) cut, signaling the start of what could be a year of monetary easing. By the end of 2025, the overnight rate could bottom out at 2.5%. Here’s what this could mean:

Increased Buyer Activity: Cheaper borrowing costs will likely encourage more buyers to jump into the market, especially in the sub-$2 million range, where affordability challenges have kept many sidelined. These rate cuts could breathe new life into the freehold and resale markets.

Fixed Rates Won’t Follow Instantly: While variable rates will see an immediate benefit, fixed mortgage rates may not drop as quickly. Inflation risks and global economic uncertainties could keep lenders cautious, moderating the pace of fixed-rate declines.

A Fragile Recovery: Lower rates will help stabilize parts of the market, but they won’t fix everything. Factors like record-high condo completions, rental market challenges, and broader economic pressures still pose risks to market activity and price stability.

Here’s where things get unpredictable. U.S. President Donald Trump is proposing a 25% tariff on Canadian goods starting February 1st. If implemented, these tariffs could send shockwaves through the Canadian economy and, by extension, the housing market.

Economic Impact: The tariffs could result in significant job losses and economic slowdown. The economy may contract noticeably, with inflation rising sharply and unemployment climbing to levels not seen in years, potentially leaving hundreds of thousands without work.

Government Responses: The Liberals plan broad retaliatory tariffs and pandemic level support packages to ease the impact on Canadians, though these measures could fuel inflation and raise rates.

The Conservatives propose targeted tariffs to hit the U.S. while minimizing Canadian fallout, paired with tax cuts to help Canadians manage rising costs.

What About the Bank of Canada? It’s anyone’s guess how the central bank will respond. Balancing inflation control with economic support in a volatile trade environment is uncharted territory.

If these tariffs go into effect, the uncertainty could push buyers and investors to adopt a "wait and see" approach, slowing the market further. And if the economy worsens significantly, 2025 could rival the turbulence we saw during COVID-19.