By most projections, the Canadian housing market is expected to see modest sales and price gains in 2025, but “it’s still a long way back to the 2022 highs,” according to BMO Senior Economist, Robert Kavcic.
In BMO’s housing outlook for 2025, Kavcic predicts national home prices won’t push past 2022 levels until 2029 under the bank’s base-case scenario.
Modest growth in sales and prices
According to the report, sales volumes are expected to rise 12 per cent this year, driven by a rebound from the “depressed” levels of the previous year, while the benchmark home price is forecasted to climb a modest 4 per cent “as still-challenging affordability and investment calculus will keep the rebound in check.”
Regionally, Southern Ontario and British Columbia—markets that saw some of the sharpest declines—are expected to recover, while Alberta and Atlantic Canada, which outperformed during the pandemic, are likely to see more tempered growth.
BMO highlights a sharp contrast in performance within major cities like Toronto, where single-detached homes are in demand but, as we’ve heard repeatedly, the condo market faces mounting pressure due to an influx of new units hitting the market. “Look for condo prices to struggle in 2025 even if the single-detached market improves further,” the report states.
Mortgage rates near cycle lows
Mortgage rates are another critical factor shaping the housing market in 2025. BMO notes that most of the Bank of Canada’s current rate-cut cycle has already been priced into fixed mortgage rates, which are now in the low-to-mid 4 per cent range. Kavcic adds, “There is room for variable rates—currently around 4.7 per cent—to test the 4 per cent level, which would be an important psychological and valuation barrier, but the Bank will have to continue easing.”
New mortgage rules implemented in December “should incrementally ease conditions into the spring season.” These include an increase in the price cap for insured mortgages, from $1-million to $1.5-million, and the extension of 30-year amortizations to first-time buyers and purchasers of new homes. Kavcic expects these changes could make housing more accessible, particularly in larger markets where lower-end single-family homes and larger condos often fall within the updated price range.
Challenges in affordability and investment
Despite these positive trends, affordability remains a significant challenge. Kavcic is calling for sub-4 per cent borrowing costs: “If we plug 3.9 per cent mortgage rates and a 30-year amortization into our affordability calculator, we get back into the realm of what was sustained pre-pandemic, assuming prices remain at current levels.”
The economist says this scenario could allow room for prices to rise modestly without (again) running into affordability constraints.
A cooling rental market
There are notable shifts happening in the rental sector. A combination of reduced immigration targets and an influx of new rental supply is driving down rents in major markets. The report cites data from Rentals.ca, showing a “near double-digit decline in 1-bedroom Toronto apartments.” This trend is expected to continue through 2025, with higher vacancy rates and falling rents bringing relief to renters.
Long-term outlook
Looking ahead, BMO underscores that the Canadian housing market is in the middle of a “prolonged period of consolidation.” Kavcic compares the current trajectory to past corrections, including the deep housing downturn of the 1990s. While today’s economic conditions differ significantly, the demographic and financial pressures on the market are reminiscent of that era.
“Suffice it to say, this was an extraordinarily bullish trio that won’t be repeated,” referring to the convergence of low interest rates, peak millennial demand and record immigration that fueled the 2022 highs. With these forces now dissipating, the road ahead is one of gradual recovery rather than “exuberant” growth.
