A surge in demand for homes is anticipated as many potential buyers wait for mortgage rates to drop further, according to a recent TD Economics report.
The forecast suggests that despite some reductions in mortgage rates recently, a significant number of buyers remain on the sidelines, hoping for deeper cuts from the Bank of Canada, which would lead to even lower mortgage costs.
Additionally, a major change in federal mortgage rules will soon take effect. Starting December 15th, first-time buyers will be able to access 30-year amortization mortgages for resale homes, not just new builds. This shift is expected to delay many buyers’ decisions until early 2025.
Similarly, small investors who typically buy condominiums to rent out and supply much of Canada’s rental housing, are also hesitant. Elevated rates have made the financials unworkable, with carrying costs surpassing rental income.
While historically some landlords accept negative cash flow temporarily when properties are appreciating in value, the current flat prices do not justify many investments. The belief is that both groups will re-enter the market in significant numbers as property values begin to rise again.
With further rate cuts from the Bank of Canada likely this year, we anticipate prices will appreciate more quickly, eliminating the advantages of waiting for firsttime buyers and making calculations more favourable for investors.
The report predicts a significant rebound in the market early next year, with home resales expected to jump nearly 8% in the first quarter of 2025 compared to late 2024. Another 4% growth in sales is projected for the second quarter of 2025.
Housing prices are forecasted to increase nearly 3% in the first quarter, followed by an additional 2% rise in the second quarter. For the remainder of 2025, TD expects moderate or flat quarterly growth in both prices and sales.
Much of this demand is attributed to buyers who have delayed their purchases due to high mortgage costs over the past two years.
With rates dropping, we see positive signs for sidelined buyers. As confidence grows and buyers anticipate rising prices, we expect a significant increase in activity. Given the building demand – both organic and from immigration – the 2025 spring market may start as early as late January or early February. The stage is set for a busy year ahead.
Alberta is forecasted to lead the provinces in price and sales growth next year, with an 8.5% rise in sales and a 7% increase in prices. Ontario and British Columbia are expected to top the list for sales growth, each with an estimated 23% increase.
