The real estate market in Canada is poised for significant change in 2025, driven by a mix of economic factors, policy changes, and evolving demographic trends. As we move into the new year, these key predictions will shape the housing landscape and impact buyers, sellers, investors, and developers. Let’s dive into what’s ahead.

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1. Toronto’s Condo Market Faces a Downturn

Toronto's condo market has been sluggish in recent years, and 2025 is expected to bring more challenges. In 2024, sales of newly built condos dropped a staggering 57% year-over-year, marking the steepest decline since 1997. This downturn is largely attributed to high interest rates, which have deterred buyers from entering the market. As the number of available condo listings rises and demand wanes, prices are expected to fall further in the first half of 2025. However, as investor sentiment weakens, the number of new condo developments has also decreased significantly, leading to a potential future shortage of units. By the latter half of 2025, the Toronto condo market may see a modest recovery, as the reduced supply of new builds could drive up prices again.

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2. British Columbia’s New Flipping Tax Takes Effect

Starting January 1, 2025, British Columbia will introduce a new tax aimed at curbing the housing speculation and flipping market. The province has been grappling with an ongoing housing crisis, and the new "flipping tax" is one of its most aggressive attempts to address it. The tax will apply to homes that are sold within two years of purchase, with rates starting at 20% for homes sold within the first year and gradually decreasing to 0% after the second year. Some exemptions will apply, such as for individuals who need to relocate for work, or those facing life events like divorce or the death of a spouse. This new policy adds to the federal flipping tax introduced in 2022, which treats profits from the sale of a home held for less than a year as taxable business income. Investors looking to flip homes will need to adjust their strategies accordingly, while homeowners who hold properties longer could see less competition in the market.

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3. Interest Rates to Continue Their Decline

After a prolonged period of high interest rates aimed at curbing inflation, the Bank of Canada (BoC) is expected to continue reducing rates throughout 2025. As inflation is brought under control, the BoC’s focus will shift to supporting economic growth, particularly in light of a slower-than-expected GDP growth outlook. Lower interest rates will have a direct impact on the real estate market by making mortgage financing more accessible. This will likely encourage more homebuyers, especially first-time buyers, to enter the market. In addition to rate cuts, changes to mortgage rules, such as higher borrowing caps for homes purchased with less than a 20% down payment and extended amortization periods for some mortgages, will make it easier for buyers to secure financing.

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4. U.S. Real Estate Firms Eye Canadian Market

In 2025, U.S. private-equity firms are expected to increase their investments in Canadian real estate, particularly in the rental housing market. With housing prices rising and rents escalating, the demand for purpose-built rental units is at an all-time high. Firms such as Blackstone, the world’s largest private-equity firm, have already invested heavily in Canadian rental housing, purchasing major players like Tricon for US$3.5 billion. Additionally, U.S.-based developer Hines LLP has plans to invest up to $2 billion in large-scale apartment complexes in cities like Toronto, Vancouver, Calgary, and Montreal. The Canadian government has recently reduced taxes on new rental builds and is offering more affordable financing options for developers, creating a favorable environment for U.S. firms to invest in the market.

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5. Labour Shortages Cause Construction Delays

Canada’s construction industry is facing a significant labour shortage, and it’s expected to worsen in the coming decade. According to forecasts, over 260,000 construction workers will retire by 2033, with a limited pool of skilled tradespeople available to fill those positions. Adding to the problem, only about 2% of Canada’s immigrants over the past decade have had skilled trades qualifications, and many young Canadians are opting for white-collar careers instead of pursuing construction jobs. As a result, there will likely be delays in the construction of new homes, which will exacerbate the already-tight housing supply. The federal government’s goal of building 3.9 million homes by 2031 may be difficult to achieve without a substantial influx of skilled labour.

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6. Indigenous Communities Take the Lead in Housing Development

Indigenous communities across Canada will play a leading role in the housing market in 2025. Several large-scale housing developments are already underway on Indigenous land, with more expected to come. One of the most high-profile projects is the Sen̓áḵw development in Vancouver, a $3-billion project on land owned by the Squamish Nation that will include 11 towers and 6,000 residential units. The first three towers are slated for completion in 2025. Additionally, the Attainable Housing Initiative in British Columbia, which is developing 2,600 homes on Indigenous land, will provide affordable housing options with subsidies for low- to moderate-income families. These projects represent a shift toward greater Indigenous involvement in housing development, and they are set to play an important role in addressing Canada’s housing shortage.

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7. Millennials and Gen Z Become Bigger Players in the Housing Market

In 2025, millennials and Gen Zs will become a larger presence in the housing market. With interest rates expected to fall, more young Canadians will have access to affordable mortgage financing. Rising wages and the increasing availability of online mortgage applications will make it easier for millennials and Gen Zs to enter homeownership. According to a recent Scotiabank poll, over half of non-homeowning Canadians aged 18 to 34 plan to buy a home in the next five years. This is a significant increase compared to previous years when affordability challenges prevented many young Canadians from even considering homeownership. As more young buyers enter the market, their impact on housing demand will drive competition and potentially push prices higher in some areas.

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8. Mortgage Defaults and Renewals Will Surge

One of the biggest challenges facing homeowners in 2025 will be mortgage renewals. Over one million Canadian households are expected to face mortgage renewals at higher interest rates, which will likely lead to a rise in mortgage defaults. With household debt levels already among the highest in the world, many homeowners will find themselves unable to keep up with their payments. The banks are bracing for this scenario, having set aside over $4.5 billion in provisions for credit losses. As defaults increase, banks may need to set aside additional capital, which could trigger a credit crunch and make it harder for buyers to obtain new loans. The rise in defaults will have a broader economic impact, potentially slowing down the economy and affecting consumer spending.

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9. Edmonton Embraces AI for Building Permits

In 2025, Edmonton will become the first municipality in Canada to use AI for building permit approvals. The city is rolling out its Auto Review program, which will allow builders to apply for permits for detached and semi-detached homes online and receive approval the same day. This initiative is designed to streamline the construction process and alleviate delays caused by a growing population and increasing demand for housing. With Edmonton’s population growing rapidly—up 12% over the last five years—this move will help meet the demand for new homes and improve the city’s overall housing infrastructure.

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10. GST Cut for New Homes Under $1 Million

If Conservative Leader Pierre Poilievre’s party wins the next federal election, a major change to Canada’s housing tax policy is on the horizon. Poilievre has pledged to eliminate the Goods and Services Tax (GST) on newly built homes priced under $1 million. This tax cut is designed to stimulate homebuilding and make new homes more affordable for Canadians. However, there is a catch—Poilievre’s plan would eliminate the Liberals’ Housing Accelerator Fund and the Canada Housing Infrastructure Fund, which are designed to support infrastructure improvements and zoning reforms in Canadian cities. While the tax cut could encourage homebuilding, it may also slow down efforts to improve housing availability and affordability in other ways.

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Conclusion

The housing market in 2025 will be shaped by a mix of policy changes, economic factors, and evolving demographic trends. From interest rate adjustments to the rise of Indigenous-led housing developments, these predictions offer a glimpse into what the future holds for Canadian real estate. Buyers, sellers, investors, and developers alike will need to stay informed and adapt to these changes as they unfold throughout the year.