Ask the Expert is a monthly column where Steve Garganis, lead mortgage planner at Mortgage Architects and founder of CanadaMortgageNews.ca dives into what’s going on with mortgage rates and the Canadian housing market. Have a question for Steve on home buying and your mortgage? Reach out to us at media@rates.ca.
With 2024 at a close and the new year upon us, the housing market is in a delicate balance. Interest rates are declining, which is great news for borrowers. However, these cuts are giving way to a small rebound in the housing market, and, to many real estate watchers, threatening to bring on another affordability crisis.
At the same time, no jumbo cut nor government incentive to bring first-time homebuyers into the field seems to be helping a stagnated condo market.
Amid the uncertainty, our mortgage expert Steve Garganis offers his thoughts on what buyers and sellers can expect in 2025, and some moonshot ideas on how to revive condo development in Canada.
How you think this past year has gone for homebuyers, and where will 2025 take us?
It’s all about the rate – the mortgage rate, that is. This is what will drive Canada’s housing market and also a big part of our overall economic health. In 2024 we saw fixed interest rates drop by around 1% and the Bank of Canada rate drop by 1.75%. These rate cuts were desperately needed ... and they’re not over. Economists are forecasting for the Bank of Canada to cut rates by another 1% by mid 2025.
We can expect fixed rates to fall a little further in 2025 before a potential rate increase. I think we may even see fixed rates fall further than CIBC is forecasting, with interest rates in the high 3% range.
Looking at home sales in 2024, some recovery is taking place.
Home sales in November 2024 are up to 44,590 sales or 2.8% compared with 43,392 sales in October.
Meanwhile, the average selling price for November was $723,100 compared to $718,900 in October (seasonally adjusted). But this is still below last November’s average selling price of $731,100. The number of listings currently sits at around 160,000 — down from the 10-year average of 178,000.
The trend or pattern shows we had a more active market but lower prices from 2023.
And coming up? With the next Bank of Canada meeting dates scheduled for January 29 and March 12, we can expect a few more rate cuts, which should keep the spring market active.
In speaking with my peers and based on my own client database, I can tell you there is a pent-up demand of buyers sitting on the sidelines waiting for the interest rates to fall. But other groups are also waiting for the right home to come to the market in the right neighborhood. Once this group’s needs are fulfilled, I’m forecasting a slower market in the second half of 2025.
The government also plans to cut immigration to 395,000 from it’s target 500,000 for 2025, and to 380,000 from 500,000 in 2026. There will also be a 5% reduction in temporary residents by the end of 2026, which should ease demand for housing and return us back to a normal market.
My advice? Buy with the seven-year plan in mind. Buy and hold for at least seven years. This is how long it takes to live through any up and down economic cycle.
It is also long enough to amortize the acquisition and disposal costs of buying and selling real estate. Leave the house flipping to the investors that can weather a big loss. I’ve always recommended a “buy a home” approach when it comes to real estate. It’s served my clients well. Maybe it will help you, too.
What needs to happen for the condo market to work for sellers, buyers and renters?
The condo market is in trouble. We don’t have good stats yet, but new developments are on pause or going bankrupt due to poor demand. Condo sales have fallen by 20% over the last few years.
Over the last 10 years or so, we saw the size of condos go from 800 to 1,000 square feet to 500 square feet - and then 300 square feet in Toronto, Vancouver and Montreal. These micro condos are nothing more than hotel rooms made to be rented like hotel rooms. Personally, I have no problem with them. I think they serve a need.
But nobody wants to buy a 500-square-foot condo to raise a family. These are designed as rental units or units for professionals to live and work in major urban areas.
There are easy solutions that the federal government could take to save the condo market and motivate builders to build homes again. The first is allowing all buyers of all properties, new and existing, to extend their amortization term to 30 years – and not just to first-time homebuyers.
Next, removing the qualifying stress test rate of 5.25% or 2% above the contract rate (whichever is higher) for buyers. This would allow another 10% of consumers to qualify for a mortgage.
Another possible solution? Allow borrowers to buy rental properties with less than 20% down. We used to be able to do this before the 2008 subprime mortgage crisis that caused all the lending rules began to really tighten up.
These reforms will allow more borrowers to qualify for mortgages and provide more demand, which is what developers are looking for to justify new home construction. We have tools at our disposal. We just need to use them.
Catch up on Steve’s other columns:
- Ask the Expert: Steve Garganis on how the US impacts Canadian mortgage rates
Find a mortgage broker
Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.
Here at RATESDOTCA, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.
