Predictions for the 2025 real estate market in Southwestern Ontario, Canada, hinge on various factors including economic conditions, interest rates, housing supply, and demographic trends. Here’s an overview of potential developments:

1. Continued Demand in Urban and Suburban Areas

• Population Growth: The region's population is expected to continue growing due to immigration and urbanization. This will keep demand high, particularly in cities like Kitchener-Waterloo, London, and Guelph.

• Workforce Migration: With hybrid and remote work becoming the norm, mid-sized cities with good infrastructure and quality of life, such as those in Southwestern Ontario, may see more demand from professionals relocating from larger urban centers like Toronto.

2. Stabilization or Moderate Increase in Home Prices

• Price Growth Slowdown: If interest rates remain elevated, price growth may stabilize compared to the rapid increases seen during the pandemic years. However, limited inventory could still push prices up in competitive markets.

• Affordability Concerns: Persisting affordability challenges may lead buyers to explore smaller towns or less expensive neighborhoods within the region.

3. Increased Importance of New Construction

• Supply Shortages: The supply of resale homes will likely remain tight, increasing the significance of new builds. Developers may focus on high-density projects like townhouses and condos in urban centers to address affordability and zoning constraints.

• Sustainability Features: Buyers, especially younger ones, will increasingly seek energy-efficient and eco-friendly homes.

4. Interest Rate Sensitivity

• Impact of Rates: The Bank of Canada’s interest rate policies will significantly influence buyer behavior. If rates remain high, this could suppress demand slightly, particularly among first-time homebuyers.

• Adjustments: More creative financing solutions, such as rate buy-downs or rent-to-own programs, may emerge to address affordability concerns.

5. Rental Market Strength

• High Demand: With affordability challenges, rental demand will remain robust. Southwestern Ontario may see more investors focusing on multi-family properties.

• Regulatory Changes: Possible government interventions in housing markets could impact landlords, with rent control or tax changes playing a role.

6. Government Policy Impacts

• Incentives for First-Time Buyers: Programs aimed at helping first-time buyers could stimulate demand in 2025, further supporting price stability.

• Immigration Targets: Canada’s aggressive immigration goals will sustain demand in the housing market, particularly in areas with job opportunities and good quality of life.

7. Technology and Marketing Trends

• Digital Engagement: The use of virtual tours, AI-powered marketing, and online platforms will grow in importance as buyers continue to start their home searches online.

• Real Estate Teams: Collaborative teams like Magnolia Group Realty could find new opportunities by leveraging digital tools to stand out in a competitive market.

Challenges to Watch

• Construction Delays: Labor shortages and material costs may slow down new builds.

• Economic Uncertainty: Any economic downturn or unexpected global events could impact market confidence.

Southwestern Ontario is likely to remain an attractive market due to its balance of affordability (compared to the GTA), growing infrastructure, and desirable lifestyle. Strategic planning and adapting to market trends will be key to thriving in 2025.

Recent changes to Canadian mortgage funding and policies in 2024 reflect efforts to address housing affordability and market flexibility. Key updates include:

1. Increased CMHC Insured Mortgage Cap: The cap for insured mortgages has been raised from $1 million to $1.5 million. This change enables buyers, particularly in high-cost markets like Toronto and Vancouver, to access larger loans with as little as a 5% down payment. This adjustment aims to make homeownership more accessible in these expensive areas.

2. 30-Year Amortizations for First-Time Homebuyers: The amortization period for insured mortgages has been extended from 25 to 30 years for first-time buyers. This reduces monthly payments, improving affordability, though it increases overall interest paid over the loan's term.

3. Removal of Stress Test for Mortgage Renewals: OSFI has removed the requirement for borrowers to pass the stress test when switching lenders during mortgage renewals. This change fosters competition among lenders, encouraging homeowners to seek better rates without added financial hurdles.

4. RRSP Home Buyer’s Plan: The withdrawal limit under the RRSP Home Buyer’s Plan has increased from $35,000 to $60,000, providing more support for first-time buyers to fund down payments.

These measures are designed to help both new buyers and existing homeowners navigate Canada’s housing challenges, though concerns remain about potential upward pressure on housing prices due to increased borrowing capacity.

The central bank is widely expected to lower rates again. Will it be 25 or 50 basis points?

By Fergal McAlinden

05 Dec. 2024

The Bank of Canada’s final interest rate decision of 2024 is drawing nearer – and with a fifth rate cut of the year seemingly all but a done deal, the only remaining question seems to be whether it will move by 25 or 50 basis points.

TD Bank economists believe a 0.25% reduction is on the way next week (December 11), although they view a bigger move as a distinct possibility, while BMO’s Shelly Kaushik also highlighted the likelihood of a routine 25-basis-point cut.

Royal Bank of Canada (RBC), meanwhile, said after the release of the latest national GDP figures that the continuing sluggishness of the Canadian economy pointed to a 50-point cut by the Bank to round out the year.

The central bank’s decision is being closely watched by hopeful homebuyers and mortgage professionals alike as they wait to see how far rates might slide.

How would a jumbo rate cut impact the market?

Still, even a so-called oversized cut of 50 basis points won’t materially change the outlook for plenty of buyers in the current market, according to Valko Financial founder Tracy Valko (pictured top).

She told Canadian Mortgage Professional that while many consumers had been tracking the news to see whether that supersized discount might arrive, a big cut almost certainly wouldn’t see an immediate flood of new homebuyers in the market.

That’s because the gap between lowest fixed and variable rates on offer in the market, even with a big Bank cut, means it’s still a better option to go with a fixed option – which isn’t directly impacted by the central bank’s rate policy.

“I tell any client right now: A lot of people are misunderstanding that bank prime,” Valko said. “The reduction in bank prime is not necessarily going to affect them on a preapproval because more than likely, most bank lenders and those in our broker space were approving people on fixed rates and it’s stress tested – fixed rates are still lower than where bank prime is.

“So even though a variable is a better product to take right now for a lot of clients because we know we’re in that declining rate environment, it’s not necessarily going to be an option of choice at the time of a preapproval because we want to help people get into homeownership – and it’s hard if that rate is stress tested and it’s still higher than where it should be right now.”

That’s not to say a further cut by the Bank of Canada wouldn’t be good news for the market. Valko is expecting a 25-basis-point reduction next week but wouldn’t be surprised by a larger move – “and the trend is decreases into 2025,” she said. “We have to understand that’s good momentum because that means we’re going to see [further progress] eventually.”

How have rate cut expectations changed in recent weeks?

The Bank of Canada has maintained a cautious tone on the prospect of further big rate reductions, with Governor Tiff Macklem’s suggestion that Canadians could “breathe a sigh of relief” on the economy hinting that its 50-point cut in October wouldn’t necessarily be repeated.

But a continuing economic slowdown – which saw growth dip to a 1% annualized rate in the third quarter compared with 2.2% in Q2 – has brought that prospect back into view.  

Even though the central bank has been unwilling to comment on the likelihood of an oversized rate reduction next week, it’s been candid about the likelihood of further cuts in 2025, something that Valko said could be keeping homebuyers on the sidelines as they wait for rates to fall further.

That’s especially the case, she added, with many Canadians on the fringes of the market at present thanks to current rates. “It’s a real struggle for a lot of people who want to take variable, and we can recommend it, but ultimately they don’t qualify,” she said.

“So they say, ‘I’ll sit on the side until I see a couple of other decreases.’ The hope of most Canadians out there that haven’t bought and want to buy is that they’ll see the trend of rates coming down into the beginning of 2025.”