While we’re still a far cry from the flurry of activity and bidding wars we saw during pandemic times, there are definitely signs of revival in Canada’s real estate market. In its latest housing market report, the Canada Mortgage and Housing Corporation (CMHC) acknowledges the macroeconomic uncertainty of today’s current climate and doesn’t identify a base case, but three plausible scenarios that could impact Canada’s housing market through the forecast timeframe. It takes into account the economy for the next year, even in the event of a 25% tariff on goods. Interest rates are the main variables, says Hughes. Generally, Canada’s home sales and prices are forecasted to rebound in the year ahead, says CMHC. While sales in Alberta and Quebec are expected to hit historic highs, sales in pricier markets, like British Columbia (BC) and Ontario, will remain below their 10-year averages and their prices will grow at a slower rate, thanks to affordability challenges and the impact of immigration targets.

“Should inflation continue to keep edging downward, the rate drops could continue in the short run and definitely that will have an impact – and has already had an impact – on demand for the next year,” says Hughes. He says this will most influence pent-up demand. “It’s the people who may have been ready to buy before the pandemic, but then the whole thing stopped their plans,” says Hughes. “And that was followed by a high inflation environment. So, this postponement of their buying decisions kind of built that pent-up demand. We expect that, with the current rate environment, it will express itself and become actual demand.” Hughes says this emergence from the sidelines involves many young first-time buyers, but also move-up buyers and down-sizers too. “We expect this group to orient their purchase probably more on the resale market because of its relatively lower price and its greater variety of housing,” says Hughes.

As of right now, there seems to be a correlation between dropping rates and sales in the notoriously unaffordable Greater Toronto Area (GTA). “The interest rate drops have indeed had an impact on the number of sales in 2024,” says Adrienne Lake, Managing Broker at Corcoran Horizon Realty in Toronto. “This is demonstrated by the increase in sales of 2.6% year-over-year, 2024 compared to 2023. The buyers' actions in 2024 have shown there is a cautious optimism with their return to the market.”

The sentiment among industry is that this activity will increase with future rate drops. “Borrowing costs have a significant impact on the buyer's behaviour,” says Lake. “With continued interest rate cuts (especially for first-time homebuyers), buyers will start to engage in their home search in greater numbers as they see the affordability that the lower interest rates offer.” Along that line of thinking, polling data from Ipsos released as part of last week’s market update from Toronto Regional Real Estate Board (TRREB), showed that more than 80% of renters polled in fall 2024 believed that a 2% (40% of respondents) or 3% (44% of respondents) drop in the interest rate would see their ability to purchase a home become viable. Since September 4, 2024, the rate has already come down 1.25%.

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