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Improving economic conditions and new federal policies should lead to rising home sales across Canada, especially in early 2025, but also push up prices, according to the latest outlook from TD Economics.
The Bank of Canada (BoC) is expected to cut interest rates further and “economic growth is likely to regain some traction going forward,” economist Rishi Sondhi wrote in an update published Thursday. These factors, coupled with changes to mortgage rules, mean “conditions are in place for a solid pickup in resale activity,” he writes.
TD expects annual growth in sales to hit 5.4 per cent nationally at the end of 2024 and 16.6 per cent in 2025. In particular, it forecasts “powerful gains in Canadian sales and average home prices across Canada in the first half of 2025.”
The projections for home prices include considerable regional variation, with expected price growth somewhat more muted due to ongoing affordability issues in many markets. Nationally, home prices are expected to rise 1.3 per cent by the end of 2024 and 6.9 per cent in 2025.
Deloitte, in its fall economic outlook for Canada, offers a similar view, writing that “with home prices well off their 2022 peak and mortgage rates falling, we expect sales activity to begin picking up in the final quarter of this year with strong growth in the cards in both 2025 and 2026 as sales return to their historical average.”
Part of the projected jump in 2025 will be due to many buyers waiting for further interest rate cuts telegraphed by the BoC, as well as for the new federal mortgage policies to take effect, Sondhi says.
“The flat trend in Canadian average home prices since the summer means [prospective buyers] haven’t really been penalized for that choice,” Sondhi wrote.
The changes will extend insured mortgage coverage to homes valued at up to $1.5 million (from the current $1 million), reducing the required minimum down payments for homes in that range. The changes also make 30-year amortizations accessible to first-time homebuyers and buyers of new builds, a measure that can either increase purchasing power or reduce a buyer’s monthly payments.
Substantial sales growth in B.C., Ontario
Sondhi writes that the measures should stimulate markets in B.C. and Ontario more than others because those provinces “have the largest share of homes valued at between $1-$1.5 million.” TD expects growth in home sales in 2025 to hit 23.2 per cent in B.C. and 23.9 per cent in Ontario. Price growth is forecast to be far more modest, at under five per cent, “restrained by loose supply/demand conditions in both regions in the near term and affordability backdrops that will remain historically challenging thereafter.”
Price growth should “overperform” in the prairie provinces, Sondhi says, driven by “tight markets, historically strong population growth, solid affordability conditions, and economic outperformance.” More limited supply in Quebec and the Atlantic provinces will allow for prices to rise, but checked by “affordability deteriorations” in those markets.
Sondhi notes that it’s not yet clear how Canadians will respond to the federal mortgage policies, a risk factor to the forecast. “It could be the case that housing reacts more aggressively than what we’ve pencilled in, especially in a falling rate environment,” Sondhi wrote.
Population growth, which raises housing demand, is also uncertain, the economist says, with TD’s forecasts for growth lower than the Bank of Canada’s.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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