Why 2025 is shaping up to be a good year to buy a new home

As readers of Condo Life and Homes might have been seeing for months, the tide feels more and more like it is turning, after a challenging few years for the Greater Toronto and Hamilton Area (GTHA) housing market.

Prospective homebuyers who may have delayed their purchase plans as they wait for market and economic conditions to improve – and used this time to research their target area, home type and builder, and shore up their finances – could be among those who benefit most.

There’s been no shortage of reasons for pause for some would-be homebuyers: Uncertainty over housing supply, interest rates, inflation, politics and the economy in general. But the pendulum looks to be swinging back the other way.

“First-time buyers, in particular, have faced challenging affordability conditions in recent years,” Ted Tsiakopoulos, an economist specializing in housing, told Builders’ Annual. “However, there are signs that some relief is forthcoming.”

Indeed, there are reasons to feel upbeat about homebuying in 2025. Let’s explore some of them.

Housing policy

It’s hard to ignore this one these days, as it’s a hot topic not just in the GTHA and elsewhere in Ontario, but in all of Canada. Homebuyers, builders, lenders and, of course, industry associations are all interested in, and offering their opinions on, this important subject.

Ultimately, though, it’s up to government – municipal, provincial and federal – to truly understand the issues and address them with meaningful and effective measures.

“We need a national housing program to help address the imbalance of demand and lack of available homes,” says Deena Pantalone, managing partner and chief innovation officer at National Homes. “The status quo hasn’t changed the paradigm. Yes, moves have been made but it’s an urgent issue that is impacting an entire generation of Canadians.

First-time buyers need direct support,” she adds. “In the U.K., mortgage payments receive a flat 20-per-cent tax credit. In the U.S., you can claim interest on the first $750,000 of your mortgage. Here in Canada, it applies only to investment properties. That’s not helping young homebuyers.”

Housing policy, particularly at the municipal and provincial levels, is a key focus of the Building Industry and Land Development Association (BILD). BILD recently released its third Municipal Benchmarking Study, which revealed just how much project approval times, development charges and fees and other issues are hampering builders’ efforts to deliver new homes.

“The GTA is at a crossroads,” says Dave Wilkes, BILD president and CEO. “It is facing the prospect of a deepening housing crisis that threatens the stability and growth of our communities. (Our study) demonstrates that without bold steps by government and industry, housing availability will get worse in the years ahead, with housing starts failing to keep pace with population growth.”

“We need to double the annual pace of new home construction to restore affordability in Canada,” adds Tsiakopoulos. “This requires massive amounts of new investment by the private and public sectors. There is no one silver bullet, but the math needs to work not only for homebuyers but new-home builders as well.

“Some recent work we completed with the University of Waterloo and Urbansim found that by eliminating structural barriers such as restrictive zoning, long planning approval times and excessive government charges, this would help more projects pencil out. By removing structural barriers, this will lessen uncertainty for homebuilders and should support greater capacity, innovation and affordability in the housing sector over the longer term.”

Suffice to say, governments are on it and there has been progress, though slower than we all hope.

Mortgage reform

In mid-September, the federal government announced what it says are the boldest mortgage reforms in decades, intended to address housing affordability and make homeownership more affordable for more Canadians.

The changes include:
• Increasing the $1-million price cap for insured mortgages to $1.5 million, effective Dec. 15, 2024, to reflect current housing market realities and help more Canadians qualify for a mortgage with a down payment below 20 per cent.
• Expanding eligibility for 30-year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, effective Dec. 15, 2024. By helping Canadians buy new builds, including condos, the government is announcing another measure to incentivize more new home construction and tackle the housing shortage. This builds on the Budget 2024 commitment, which came into effect on Aug. 1, 2024, permitting 30-year mortgage amortizations for first-time homebuyers purchasing new builds, including condos.

For context, with the change to a higher price cap, a $1.5-million home would require a $300,000 down payment. With this new update, buyers could get in with a down payment as low as $125,000.

“Many first-time homebuyers have screamed from the rooftops that the main thing that separates them from buying a home is their down payment – so this update will serve them well,” says Jesse Abrams, co-founder at Homewise, a mortgage advisory and brokerage firm.

“The biggest risk of price escalation comes from lack of supply,” says Kevin Lee, CEO of the Canadian Home Builders’ Association. “So, mortgage rule changes that will enable the construction of thousands of more new homes is a very positive move for affordability. And its impact on prices will be much less than the double-digit price inflation that has been coming from the lack of housing supply. In fact, more supply reduces price inflation.”

The one caveat to this welcome change, Tsiakopoulos points out, is that if supply is unable to respond in the short to medium term, affordability challenges could resurface.

Economic mettle

The economy – for the purposes of this discussion, including interest rates, inflation, job growth and other important indexes – is also trending in the right direction.

As of late-October, we’ve seen four consecutive drops of the Bank of Canada’s (BoC) influential overnight rate target. BoC first reduced the rate 0.25 per cent on June 4 (the first reduction in four years), then again by the same amount on July 24 and Sept. 4, to where the rate sits now, at 4.25 per cent. On Oct. 23, the Bank lowered a full half-point to 3.75 per cent – the first time it has been below four per cent in two years.

The next rate announcement is Dec. 11, and by some accounts, BoC might implement another reduction.

Why? Because – more good news – inflation dropped to 1.6 per cent in September from 2.0 per cent in August. All eyes then shifted to BoC to see if it would reward Canadians with a larger rate reduction in October, possibly a half-point, with additional cuts expected in 2025.

Successfully wrestling inflation – the whole point of raising rates over the last few years – will ensure that BoC will continue to pivot away from inflation concerns to supporting growth in the economy, says Tsiakopoulos.

“We will need to see further rate cuts before affordability improves enough to pull more first-time buyers into the market,” he says. “A sluggish labour market could also hold the strength of the recovery back in late 2024 and in early 2025. Look for an improving economy and lower mortgage rates to boost housing demand by the second half of 2025.”

On the job front, employment in Canada rose by 0.2 per cent in September to net 47,000 in September, following four consecutive months of little change. The good news here is that this was prompted largely by employment in Ontario increasing 0.5 per cent, or 43,000 jobs.

Timing

Given that there are enough encouraging signs to suggest the market is turning the corner, now could well be a very good time for well-prepared prospective buyers to make their move.

“As we approach 2025, the housing market presents a unique opportunity for prospective homebuyers,” says Debbie Cosic, founder and CEO of In2ition Realty. Several factors – including declining interest rates and significant incentives to a shrinking supply of new homes – have converged to create the perfect conditions and time for purchasing property.

And, as we and our sources and expert columnists in Condo Life and Homes often underline, purchasing a home should be viewed over the long term. Economic and market conditions over the last few years have been anything but typical, and as they improve – remembering, of course, the more systemic challenges of housing policy and supply will take some time to sort out – well-prepared buyers could benefit.