Why this could be the year of the turnaround

At time of writing – quite literally – our prime minister was resigning, a respected federal housing minister had recently announced he wouldn’t seek re-election, and all kinds of other agenda items remained on the provincial and municipal housing files.

All this activity, then, seems quite fitting for a report that examines the outlook for the upcoming year. There already were enough matters for would-be homebuyers to think about: New home supply, interest rates, inflation and the economy. We didn’t need federal politics, as it pertains to housing policy, added to the list, but here we are.

Let’s come back to this, though, for even on this topic, there are some good reasons homebuyers can feel positive about 2025, and for the market in general to embrace it as the year of the turnaround.

Several factors are swinging back in the market’s favour.

The increasing impact of declining interest rates

The Bank of Canada reduced its policy rate five times last year, the most recent being by 50 basis points on Dec. 11, following a similar 50-basis-point reduction on Oct. 23. The rate now sits at 3.25 per cent, and most experts predict more cuts in 2025.

“The December rate drop may not immediately ignite the market, but it is likely to shift sentiment, creating a more favourable environment for the spring market, which typically begins around March,” Jesse Abrams, co-founder at Homewise, a mortgage advisory and brokerage firm, told Condo Life. “Further rate decreases anticipated in early 2025 could also help as the Canadian economy works to regain momentum.”

BoC’s reductions have been helpful and are likely to stimulate the Greater Toronto and Hamilton housing market in the short term by increasing buyer affordability, adds Mike Collins-Williams, CEO of the West End Home Builders’ Association (WEHBA). “As we move through 2025, sustained lower rates will assist to stabilize market, prompting recovery and growth in both sales and new construction activity across the region.”

2025 RATE ANNOUNCEMENTS
Jan. 29
March 12
April 16
June 4
July 30
Sept. 17
Oct. 29
Dec. 10

Debbie Cosic, CEO and founder of In2ition Realty, agrees, but says lower rates are just a start.

“It is a clear signal that we are moving in the right direction, offering much-needed relief for borrowers, and a glimmer of hope for a recovering real estate market in 2025,” she says. “Lower interest rates will provide breathing room for homeowners and prospective buyers, fostering renewed activity in the housing market.

“Every little bit helps in the fight to restore the marketplace to a balanced state, but it’s still far from enough,” she told Condo Life. “We need governments to step in and banks to step up. Extended amortization rates are essential to tackle the affordability crisis we’re facing. Why is it that commercial loans in Canada can secure 50-year amortizations through CMHC-insured funds, yet this option isn’t extended to the residential market, where it’s so desperately needed?”

She also says the government needs to implement a true five-per-cent down payment program for first-time buyers – one that allows them to purchase in any marketplace, including pre-construction homes. “The government could bond the additional 15 per cent required for pre-construction purchases and guarantee it to developers, so it counts toward their preconstruction sales tallies.”

Simply put, Collins-Wiliams adds, achieving middle-class housing affordability is impossible with the current tax burden on new housing. “All levels of government need to come to the table and work with industry to drastically reduce taxes, fees and charges on new housing.”

And this brings us to…

The heightened importance of housing policy

Putting aside any uncertainty from Trudeau’s Jan. 6 resignation, housing policy is a hot topic in Canada, and certainly in the GTHA and elsewhere in Ontario. Homebuyers, builders, lenders and industry associations all have a stake in this important matter. And it’s up to government – federal, provincial and municipal – to truly understand the issues and address them with meaningful and effective measures.

From the “promises, promises” department, two important initiatives were suggested recently – though by opposition parties.

In the fall, the federal Conservatives tabled a proposal to remove the GST on new homes with a purchase price of less than $1 million. WEHBA and Canadian Home Builders’ Association (CHBA) say they have been advocating for years with all major parties for a change to GST thresholds, and are encouraged that such initiatives would address what has been a major contributor to housing affordability challenges.

“The GST thresholds haven’t changed since the introduction of the GST in 1991,” says CHBA CEO Kevin Lee. “Since then, house prices have more than doubled. Removing the GST on new homes will help improve affordability and enable more supply.”
Removing the GST for new homes purchased for less than $1 million may be “the most significant housing policy commitment made in the past two decades,” says Collins-Williams. “(It) shows leadership to cut crippling levels of taxation on new housing, puts money directly back into the pockets of Canadians while combatting the housing crisis.”

The other important recent initiative came at the provincial level, from Bonnie Crombie, leader of the Ontario Liberals. On Dec. 11, Crombie announced More Homes You Can Afford, a plan to make buying or renting a home more affordable. The measures would help young people buy their first home, seniors downsize and drive economic prosperity.

Among other benefits, Crombie says, the plan would:

Eliminate the provincial land transfer tax: For first-time homebuyers and seniors downsizing – saving families and seniors on average $13,500 off the cost of a new home.

Scrap development charges: On new middle-class housing, which can add up to $170,000 on the price of a new home, and replace them with the Better Communities Fund to ensure that the province invests in and benefits from sustainable municipal growth.

“The More Homes You Can Afford plan will save real people up to $170,000 on the cost of a new home, make rent more affordable, and get more homes and communities built by cutting the taxes that are making homes more expensive,” she says.

Like the federal Conservative proposal, Crombie’s plan is just an idea at the moment, not a policy by a government that can actually implement it. But it’s getting huge support.

“The plan focuses on key population groups, including first-time homebuyers, seniors looking to downsize, and people looking to rent a home they can afford,” the Ontario Home Builders’ Association (OHBA) says.

Richard Lyall, president of the Residential Construction Council of Ontario (RESCON), is even more direct.

“It’s a bold move and the right call,” he told Condo Life. “(Development charges) have exploded in the last decade. A 1,000-per-cent increase. Incomes have been left in the dust and housing affordability has been crushed. No other jurisdiction does this. The growth has been a runaway train.”

Adds Collins-Williams: “The Ontario Liberal Party proposal recognizes that development charges have reached unsustainable levels and have become a huge cost driver of higher housing prices. The plan put forward by Bonnie Crombie appears to represent a good step forward in making housing more affordable.”

For their part, municipalities are beginning to take action on their own.

Vaughan shows leadership on development charges

More locally, the issue of development charges and other fees is an issue that, as Building Industry and Land Development Association (BILD) President and CEO Dave Wilkes explains in his column on page 34, must be addressed.
New homes are subject to a multitude of fees and charges collected by the municipality, such as DCs and other fees that amount to burdensome costs for new-home buyers.

Some good news on this front came in November 2024 when the City of Vaughan adopted a plan to bring these costs down. Mayor Steven Del Duca and council approved reductions to the City’s development charges, which have been among the highest in the GTA.

“Development charges have become an unfair tax burden on homebuyers,” Del Duca says. “Too many of our residents, in particular young families in our community, have seen their dream of buying a home close to where they grew up, disappear completely as housing prices have spiraled out of control. We have a housing affordability crisis, and it’s time for us to get real about the solutions needed to solve it. (This) decision by Vaughan Council to dramatically reduce our development charges for the foreseeable future is a strong step in the right direction. I urge other municipalities to follow our lead and do the right thing.”

Wilkes and others applaud the move. “BILD recognizes and commends Mayor Del Duca and the City of Vaughan for taking bold action to address housing supply and the cost to build by lowering development charges,” he says. “This will enhance the financial viability of future projects, unlocking potential investment and stimulating supply.”

Adds Cosic, “Other municipalities need to follow Vaughan’s lead by reducing development fees and charges, ensuring these savings are passed directly to purchasers.”

Such actions to reduce costs to build and buy are among what Lyall is most hopeful for in 2025. “That the grossly inflated, regressive and frankly serious taxes fees and levies on new housing at all levels of government are cut. Plus, a major streaming of the development approvals process is finally imposed. The current system is broken. Housing targets absent these measures have no chance of being hit. I think this reality is finally hitting home and will force policy makers to act decisively.”

Well prepared builders are ready

Facing a market with fundamental challenges, well prepared builders are more than ready for the 2025 turnaround. And for patient and informed homebuyers, there are plenty of opportunities in both high- and lowrise homes.

“I think 2025 is heading in the right direction,” says Kelly Anderson, sales and marketing manager at Silvergate Homes. “With interest rates on a steady decline, this should add confidence back into the minds of buyers.

“There is a lot of demand out there for housing – new buyers, downsizers, right-sizers – they all want to purchase and are just waiting for the right time. The right time for a lot of these people might be spring – so builders should gear up and get ready for a busy market. There are a lot of builders out there with fabulous projects, so buyers should see some excellent options. That, mixed with lower rates, should spice things up for 2025.”

“I believe 2025 will bring healthier sales volume compared to recent years, but the recovery will be gradual, allowing time for buyer confidence to rebuild,” adds Richard Mariani, sales and marketing manager of CountryWide Homes.

“Interest rates are continuing to trend in the right direction, but it. might still take some time before we gain large-scale momentum. I always advise potential buyers to act now because when the tides do turn, changes can happen rapidly. Before you know it, the pendulum swings back to a sellers’ market, with limited new construction available in top GTA communities.”

Mortgage reform and the power of first-time buyers

In September 2024, the federal government announced bold mortgage reforms to address housing affordability and make homeownership more affordable for more Canadians.

The changes included:

• Increasing the $1-million price cap for insured mortgages to $1.5 million, to reflect current housing market realities and help more Canadians qualify for a mortgage with a down payment of less than 20 per cent.

• Expanding eligibility for 30-year mortgage amortizations to all first-time homebuyers and to all buyers of new builds. 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 permitting 30-year mortgage amortizations for first-time homebuyers purchasing new builds, including condos.

“These new measures aim to make the Canadian housing market more accessible for first-time buyers,” Abrams writes in his column on page 24 breaking down the new rules. “While there are considerations to weigh, they offer an opportunity to take a significant step toward owning your dream home.”