Canada’s housing market in 2025 offers mixed signals for prospective homebuyers. While new mortgage rules and lower borrowing costs provide opportunities, affordability challenges and rising home prices continue to shape a competitive landscape. Here’s an analysis of whether buying a home will be easier or harder in the year ahead.
Mortgage Rule Changes: A Potential Game Changer
Two significant changes in mortgage regulations introduced in late 2024 are expected to aid first-time buyers:
- Extended Amortizations: First-time buyers or those purchasing new homes to live in can now access 30-year amortizations, up from the previous 25 years. While this increases the total interest paid over the loan’s lifetime, it reduces monthly payments and makes qualifying for a mortgage easier.
- Higher Insured Mortgage Cap: The price cap for insured mortgages rose to $1.5 million, allowing buyers to put down less than 20% on higher-value homes. For instance, instead of saving $300,000 for a $1.5 million home, buyers can now enter the market with as little as $125,000, cutting months or even years off their savings timeline.
Experts like Vancouver realtor Elliott Chun call these changes a “game changer,” particularly in high-priced markets, where buyers are now able to consider larger homes or townhouses instead of condos.
However, increased buying power may drive up competition and home prices, potentially offsetting the short-term affordability boost.
Interest Rates: A Modest Relief
The Bank of Canada cut its policy rate five times in 2024, with further reductions anticipated in 2025. Variable mortgage rates are expected to decline gradually, while fixed rates, tied to bond markets, may not see significant drops beyond their current mid-to-low 4% range.
Real estate expert John Pasalis warns that these rate adjustments may not meaningfully reduce monthly payments, especially in the face of persistently high home prices. While lower rates improve borrowing conditions, their impact on overall affordability remains limited.
Rising Home Prices and Competition
Re/Max Canada’s 2025 housing forecast predicts a 6% increase in average home prices, with single-family homes expected to rise 7% to over $900,000 and condos increasing 3.5% to an average of $605,993.
Christopher Alexander, president of Re/Max Canada, notes that as interest rates fall, market competition will likely intensify. Limited inventory, particularly in the single-family detached market, will drive prices higher, further challenging affordability.
The condo market, however, offers more inventory as new units are completed, providing first-time buyers with increased options. Pasalis suggests this could be an entry point for those seeking affordable alternatives.
Economic Uncertainty and Its Impact
Economic risks, including sluggish growth and potential trade disputes with the U.S., could impact the housing market. Rising unemployment or widespread layoffs would dampen buyer confidence and reduce market activity.
Moreover, Canadians renewing their mortgages in 2025 may face higher rates than their previous terms, squeezing household budgets and curbing spending in other areas. This financial strain could limit housing market momentum.
What to Expect in 2025
While new mortgage rules and modest rate cuts provide some relief, affordability challenges persist. Buyers in competitive markets like Toronto and Vancouver may face rising prices, while those exploring condos or less competitive areas might find better opportunities.
As Chun observes, the market math is looking rosier for some, but affordability remains a key hurdle. Buyers should weigh the benefits of policy changes against ongoing financial pressures to make informed decisions in 2025.