Real estate experts got many forecasts wrong in 2024 — Toronto’s spring and fall market were anticipated to be hot but slumped, prices were supposed to rise but remained relatively flat, and the Bank of Canada interest rate cuts were supposed to be gradual but fell rapidly.
It’s led to an unpredictable market, one that is still trying to find stability after the pandemic.
Now that the Bank of Canada has made five consecutive interest rate cuts — the last two being big 0.5-percentage-point drops — experts say sidelined buyers could re-enter the market, pushing more sellers to list their properties. Single-family homes will continue to see more offers and price increases, while condos will struggle to attract buyers, especially for studio or one-bedroom apartments.
Some leading industry voices say the market is set to rebound next year, and others are more cautious, pointing towards a decimated new-build market and ailing highrise sector — the heart of downtown Toronto — which will take years to recover.
Spring market red-hot or in the red-not?
Royal LePage president and CEO Phil Soper has said Toronto’s real estate market is heading for a booming 2025, as declining interest rates will kick off activity and prices — more buyers will enter the market creating competition and potentially bidding wars, pushing up prices. Toronto is poised to take Vancouver’s spot as the most expensive city in Canada, Soper said.
But Re/Max Canada’s 2025 housing market outlook report says first-time homebuyers won’t be able to come back to the market due to affordability challenges and won’t be able to push the market forward.
Typically, first-time buyers make up 30 to 40 per cent of buyers in Toronto, but now it’s sitting at 10 per cent and unlikely to change anytime soon, Cameron Forbes, Re/Max Realtron Realty broker previously told the Star.
“First-time homebuyers are the missing ingredient,” he said at the time. “There’s affordability challenges of the down payment and mortgage costs, which need to be put through the stress test.”
While the average selling price for all property types in the GTA has dropped by 15 per cent since the February 2022 peak, it’s still 36 per cent above 2019 levels.
The spring market will likely be dictated by move-up buyers (those looking to buy a bigger space) as they already have equity and aren’t as affected by affordability challenges, Re/Max said.
However, recent federal government changes to mortgage rules could stoke greater competition among first-time buyers looking at entry-level single-family homes.
First-time homebuyers, as well as new-build buyers, will be able to extend their amortization — the length of time it takes to pay off a mortgage — to 30 years instead of the standard 25 years. All buyers can also provide less than 20 cent as a down payment for a home costing up to $1.5 million, while the previous threshold was $1 million. The new rule changes took effect Dec. 15.
Sales soar, prices budge
Re/Max forecasts that sales will jump 12.5 per cent mostly from move-up buyers — meaning there will be an increase of activity, but the excess supply won’t be swallowed up by excessive demand as the repeat buyer cohort isn’t large enough to create heated competition without first-time buyers who were the largest buying cohort in the first quarter of 2024, according to the Bank of Canada. Prices, however, will remain relatively flat at 0.1 per cent gain by the fourth quarter of 2025.
Royal LePage has a different prediction, and says that by the fourth quarter of 2025, the aggregate home price in the GTA will be $1.22 million, up from the current $1.16 million. Single-family detached homes will see a seven per cent increase while condo prices will dip by one per cent.
Single-family homes will lead price gains as this segment of the market is chronically undersupplied — the majority of new builds are focused on high-density projects such as condos.
But the condo market, which has a glut of inventory, will struggle to find enough buyers next year, the report says.
Condo market to remain sluggish
Toronto’s condo market is the softest it’s been in recent history, especially in the downtown core, Shawn Zigelstein, broker and leader of Team Zold, Royal LePage Your Community Realty, said in Royal LePage’s outlook report. That’s because there’s a too much supply and not enough end-users or investors interested in buying at this time.
End-users, especially first-time buyers who are ready to enter the market, feel the condo units for sale are the wrong type of supply — the majority of the thousands of units on the market were built for investors to rent out, as smaller units generate better cash flow.
While larger condos have traditionally been a tough sell due to the price tag, first-time homebuyers want more spacious units or entry-level single-family homes, not 500-square-foot studios or one-bedroom units, for which they would still have to dish out half a million dollars, or more.
For investors, with rents coming down, the cash-flow doesn’t add up; rent at this time can’t cover the mortgage costs, experts say.
Variable rates to fall below fixed-rates once again
Variable-rate mortgages will make a comeback next year as the Bank of Canada is expected to decrease its key interest rate by another 75 to 50 basis points over the next six months, said Penelope Graham, mortgage expert at Ratehub.ca.
That would bring the overnight lending rate to a range between 2.5 to 2.75 per cent, and the best variable mortgage rates will in turn fall to the mid to upper 3 per cent range, she said.
“Fixed mortgage rates, meanwhile, appear to be nearing their floor as bond investors hold firm in the face of economic uncertainty,” she added, “including a potential trade war in the first half of the year.” As of Dec. 31, the best five-year fixed rate with a nonbank lender is 4.14 per cent, and for the big five banks it’s 4.59 per cent, according to RateHub.ca.
Because five-year rates appear to be stagnating, borrowers will lock into two- or three-year fixed terms offering the best of both worlds as they’ll be sheltered from the risks of variable rates while being able to switch to lower fixed rates sooner than the five-year term.
