Happy New Year and welcome to 2025!
This year is already shaping up to be a year full of uncertainties for Canada.
In just a couple weeks, Donald Trump will officially return to the White House, and his policies could shock Canada and the whole world.
Here at home, the Canadian economy is feeling the strain, and the dissatisfaction with the government is at an all time high.
So we could definitely see a shake-up in leadership as well.
Despite the uncertainties, I’m optimistic.
Every challenge brings an opportunity.
I’m excited to see how 2025 unfolds, hopefully with some positive surprises!
Now, let me give you my top 3 predictions for the Toronto real estate market this year.
Prediction #1: Prices Up in the Low Rise Market
At the end of 2024, we have 1.5 months of inventory remaining in the townhouse market.
Typically, if the level of inventory drops below 1 month, it would translate to an extremely competitive market.
On top of that, the new mortgage rule that came into effect on December 15, 2024 significantly cut down the down payment required by around 58% for homes ranging from $1 to $1.5 million dollars.
You can now buy a $1.5 million dollar home with as little as $125,000 down payment.
You see, this new rule is essentially targeting the price range of townhomes.
I think we would see a boost in demand for townhomes and with only 1.5 months of inventories, my prediction is that we would see a 5 to 10% price increase in townhomes in 2025.
Detached home prices will take longer to recover because we are still sitting with more than 3 months of inventories.
If the townhouse market becomes competitive in the spring, it is going to drive the detached market.
More and more current townhome owners will be thinking about upgrading to detached houses.
I think we would see a mild 2 to 5% price increase in the detached market in 2025.
As for condos, it is going to take even longer to see the recovery because we still have 5 months of inventory.
2025 also won’t be short of new condo completions, although most of the completions will be outside the core downtown Toronto area.
They are quite spread out in the 905 area, Brampton, Mississauga, Oakville, Markham and Vaughan.
I think we will see some divergence in condo performance in the 416 and 905 areas in 2025.
As we saw in this video, the rental demand in downtown Toronto in 2024 was actually as strong as in 2021.
After all, downtown’s central location, better access to jobs and vibrant urban amenities are irreplaceable.
Donald Trump is planning to end remote work completely and mandate federal employees to work on-site 5 days a week in order to enhance government efficiency and stimulate local economies.
If Canada follows the same return to office trend, it is definitely going to favour downtown condos because of the much shorter commute time.
I am expecting to see downtown condo prices stabilizing in 2025 with inventories being consumed at a faster rate compared to 2024.
905 condos, especially the ones without subway access, will continue to face challenges in 2025.
The pandemic-driven price increases in the 905 have eroded its affordability advantage, pushing buyers back towards the 416 for better long-term value.
When 905 townhouse prices start to increase in 2025, it will widen the price gap between townhouses and condos.
When the gap becomes too wide, people will go back to condos again.
Prediction #2: Rental Market - Downtown Holds Steady, 905 Faces Challenges
In 2024, we had a surge in rental supply from new condo completions and they were concentrated in the downtown Toronto area.
We had enough rental demand to digest the sudden surge in supply but rents still came down roughly 10% because tenants have too many choices.
This year, we need to face another surge in supply but they will be more spread out in the outskirts of the City of Toronto and the 905 area.
The biggest challenge that the rental market needs to face is the reduction in immigration targets and temporary residents.
Roughly 50% of the renters are work and study permit holders, so reducing temporary residents will definitely have a direct impact on the rental market.
My prediction is that the downtown rental market will hold steady because the new condo supply will only be roughly 60% of 2024.
But in the 905 area, rents may come down another 5 to 10% in 2025.
Prediction #3: Interest Rate Will Come Down to 2% by Mid 2025
Our unemployment rate rose to 6.8% at the end of 2024.
If we exclude the pandemic period, that’s the highest unemployment rate we’ve seen in nearly eight years.
On top of that, our GDP is expected to drop with the reduction in immigration targets because population growth is a significant driver of our economic expansion.
The Canadian economy is going to face significant challenges in 2025.
My prediction is that the Bank of Canada is going to cut the interest rate fast to stimulate the economy.
The rate announcement dates will be in January, March, April and June.
If the Bank just cuts 0.25% on each date, the interest rate will be reduced by another one percent.
So I think our interest rate will be sitting around 2% by mid year.
A side effect of the rate cuts is a drop in the value of the Canadian dollar.
The Canadian dollar had already depreciated around 7% in 2024 and it may depreciate further with more rate cuts in 2025.
What this means is that Canadian assets are at a discount to Canadians overseas.
This could attract more Canadians to bring their money back home.
In 2025, I would expect to see an increased interest from Canadians living in Hong Kong, the U.S., the U.K. to start investing in Canada again.
2025 is going to be a year of challenges and opportunities, especially in Toronto’s real estate market.
If you are interested in staying ahead of the market trends, make sure you subscribe to my channel. Let’s navigate through the twist and turns of 2025 together!
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