A 'for sale' sign at a home in Vaughan, Ont.Paige Taylor White/The Canadian Press
After another month of lacklustre sales in September, Canada’s national real estate association predicts 2025 will be the year buyers come back to the market.
The Bank of Canada is expected to continue cutting its benchmark interest rate, which will make it easier for homebuyers to qualify for a mortgage. Although the central bank reduced interest rates in June, July and September, the cost of a mortgage is still relatively prohibitive, with many prospective buyers unable to handle the monthly payments.
“It suddenly makes more sense to wait than it did a few months ago,” said Shaun Cathcart, the Canadian Real Estate Association’s (CREA) senior economist.
The cheapest five-year fixed mortgage rate is now below 5 per cent, according to rate comparison websites. That is lower than a year ago, but still more than double the rate during the early years of the pandemic. However, the case is building for the central bank to cut interest rates more aggressively, with the latest round of government data showing a slowdown in inflation and economic activity.
“A few months ago you weren’t going to get a really good rate for a few years, so might as well take a three-year fixed and get into the market,” Mr. Cathcart said. “Now, all of a sudden, you’ll probably get a pretty good interest rate by next spring.”
Private-sector economists agree. “It is probable that some buyers have decided to be patient and remain on the sidelines as they wait for even better financing conditions,” National Bank of Canada economist Daren King said in a research note.
CREA predicts there will be 499,800 home purchases next year. That would be 6.6 per cent higher than this year but still below the 10-year average. In addition to lower borrowing costs, the federal government’s easier mortgage rules are due to go into effect mid-December.
The new rules will allow first-time homebuyers to stretch out their mortgage payments over a longer period of time and permit buyers to make smaller down payments on homes that cost as much as $1.5-million.
With more buyers expected to enter the market, competition for homes will increase and lead to higher prices. CREA forecasts that the average home price across the country will reach $713,375 next year, an increase of 4.4 per cent.
Last month, the average home price in Canada was $669,630. That was 3 per cent higher than in August and 2.1 per cent higher year-over-year.
The home price index, which adjusts for the highest-priced properties and is the industry’s preferred measure, was $718,200 last month. That was unchanged from August and 3.6 per cent lower than September, 2023.
The relative stability in prices suggests sellers are not reducing their asking prices despite the lack of interest from buyers.
Sales volumes rose 1.9 per cent from August to September but remained below the 10-year average. The slowdown started shortly after the central bank started raising interest rates in March, 2022, and sales have not really picked up, even though the bank is now cutting borrowing costs.
Meanwhile, more homeowners are putting their properties up for sale. New listings rose 4.9 per cent from August to September, with a large increase in the Toronto region, the country’s largest real estate market.