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4 Major Policy Changes That Could Transform Toronto Real Estate in 2025

2024 has been an extremely tough year for the Toronto real estate market.


And that was directly reflected by the number of real estate agents exiting the industry.


At the start of 2024, the Toronto real estate board saw the largest decline in membership since 1991.


The number of registered agents dropped 8%, from over 75,000 to just below 70,000.


That translated to a 55% increase in membership fees for us, the remaining agents.


I think we would expect to see even fewer agents in 2025.


With so many agents stepping away, what’s been going on in Toronto’s real estate market this year?


The pre-construction, resale and rental markets each has its own dramatic story in 2024.


On top of that, there are 4 major policy changes that were announced this year and they could completely change the game in 2025.


Let me break it all down for you.



#1 The Pre-Construction Market


The pre-construction condo market is heavily investor driven.


With high interest rates and a bad global economy, investors are gone.


That’s why the pre-construction condo market took the hardest hit in 2024, with sales dropping almost 90% below the 10-year average.


Developers are putting projects on hold.


The number of new condo construction starts in the GTA during the first 3 quarters in 2024 dropped 73% from the same period in 2022.


The pre-construction market basically went into a flash freeze in 2024.


#2 The Resale Market


For the majority of the year, most of the buyers were on the sideline, in a wait-and-see mode.


So the resale market was generally quite slow in 2024.


The Bank of Canada started the first rate cut in June, the market didn’t really react to it at all.


Inventories were starting to pile up, especially in the condo market.


After 4 rate cuts, we finally saw some actions in the market.


In October and November, GTA home sales increased by over 40% year over year.


New listings also significantly slowed down.


So the market started to consume the high level of inventories.


Detached market inventories came down from 4.8 months to 3.4 months.


Condo inventories came down from almost 7 months to 5 months.


The townhouse market has the tightest market conditions, with only 1.5 months of inventories remaining.


The year end data is suggesting that the market is turning around, with townhouses leading the way to recovery.


#3 The Rental Market


2024 was a record year for new condo completions, especially in downtown Toronto.


The market was flooded with rental supply.


However, there were actually enough tenants to digest the high level of inventories.


Our rental department alone leased over 400 units in 2024.


Rents have been trending downwards though because tenants have plenty of choices.


Rents are roughly 5 to 10% lower than last year.


That’s a quick review of what happened in the 3 market segments in 2024.


Now, let’s talk about the 4 major policy changes that were announced in 2024 and how they may shape each of the markets in 2025.


#1 Interest Rate Cuts


In the second half of 2024, the Bank of Canada finally started its rate cut cycles to stimulate the slowing economy.


There were 3 consecutive 25 basis point cuts in June, July and September.


Followed by a jumbo 50 basis point cut in October.


A couple weeks ago, the Bank of Canada announced the final rate cut in 2024, another jumbo 50 basis point cut, bringing the overnight interest rate down to 3.25%.


Economists anticipate that the Bank of Canada will continue its rate-cutting trajectory into 2025.


At this point, it is still highly uncertain how big and how fast the rate cuts will come because there are still a lot of possibilities on what’s going to happen to our economy.


How the rate cuts unfold will have a direct impact on the real estate market because it is highly sensitive to interest rates.


Lower interest rates typically translate to more affordable mortgages.


So it will have a more immediate demand boost on the end user driven resale market.


Lower interest rates will also boost investor confidence and bring them back to the market.


But it will take much longer to bring investors back because they also consider other external factors such as global economic conditions and domestic policies.


End users are much more direct, they need a place to live, so if the math works out, they will buy.


How the 2025 housing market plays out will be highly dependent on end user actions.


#2 Sharp Cut in Immigration


In 2024, our government made a drastic move to significantly reduce immigration.


The permanent resident target for 2025 will be reduced by 20% to only 395,000.


The government also aims to reduce temporary residents from 7% to 5% of the total population over the next 3 years.


This means we are going to see a large reduction in both international students and temporary foreign workers.


Coming 2025, we are going to see an immediate hit on the rental market because roughly 50% of renters are international students and work permit holders.


As for the resale market, it is unlikely that we will see any immediate impact in 2025 because the majority of buyers are not work and study permit holders anyway.


#3  New Mortgage Rules


The government announced 3 big mortgage changes earlier this year and they have just come into effect a couple weeks ago on December 15.


This first one is to allow first time home buyers to extend their mortgage payments over 30 years instead of the standard 25 years.


And that will apply to newly built homes and resale properties.


The second one is to increase the insured mortgage cap from $1 million dollars to $1.5 million dollars when the buyer’s down payment is less than 20%.


This is a significant change because it cuts down the upfront down payment required by a large amount.


For a $1.5 million dollar home, if a 20% down payment is required, you would need $300,000 readily available to buy this home.


With the new policy, you potentially only need $125,000 down payment, versus $300,000.


This would open up a lot more opportunities for people to purchase a home because people struggle the most coming up with the big lump sum payment upfront.


It takes too long to pile up savings.


Most people can actually manage the monthly payments, they just don’t have the down payment.


So the $1.5 million dollar price cap, together with the 30-year amortization, will solve this exact problem.


In 2025, we could potentially see a boost in demand for homes around $1.5 million dollars, that would typically be townhouses.


I would say resale townhouses are going to drive the market in 2025.


The third mortgage change was geared towards existing home owners and it came into effect on November 21.


Previously, if you have an existing mortgage and you want to jump to another lender for a renewal because they have a better rate, you have to re-qualify with the stress test.


Now it is not required anymore.


You are free to switch around for better rates.


The government’s intention to stabilize the housing market is clear.


We will have to see how these mortgage changes play out in 2025.


#4 Change of Government


With Trump being re-elected as the President for the United States, there are a lot of possibilities for Canada's economy in 2025.


If our economy gets hurt, then is the Bank of Canada going to slash interest rates bigger and faster to save our economy?


Is the Canadian government going to come up with more new policies?


Besides, our federal election is coming up in 2025.


So we may see a change of government in Canada as well.


2024 was full of dramatic changes.


Sit tight.  We will likely see even more changes in 2025.


Let’s embrace the changes together.

It’s time to put behind 2024 and look forward to 2025!


I wish you and your family a very happy new year!


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