Why Prices Could Go UP or DOWN in 2025?

I'm going to start with nobody knows where prices will go in 2025! I'd be a bit skeptical of anyone that tells you they know with 100% certainty. Chances are those within the industry will push a positive narrative and those looking to get into the market will suggest prices are bound to crash. The reality is that we have been in a relatively stable market for the past 2 years and this environment provides less risk than when prices were shooting up in 2021 and 2022.

3 reasons prices could go up in 2025:

1) Lower Rates will lead to improved affordability but perhaps more importantly, will improve buyer sentiment and confidence. While fixed rates are hovering in the low 4s somewhat similar to last year, variable rates are expected to move down further. 2024 started with variable rates around 6% and now they're closer to 4.5%. Banks have varying forecasts for how much rates will drop. The most conservative assume rates will land somewhere in the high 3s and the most aggressive being in the low 3s. This while nowhere near to the low interest environment seen during the pandemic, would still represent the lowest rates we have seen over the past few years. Lower rates mean lower payments and higher qualifications which would be a positive for prices.

2) The Government introduced a few mortgage changes that should also have a positive impact on the market. For one, they removed the stress-test for those renewing their mortgages. This creates more competition from banks, potentially lower mortgage costs and as a result, owners would have be less likely to be forced to sell.Secondly, the government extended the maximum mortgage amortization for first-time buyers to 30 years from 25 years and increased the purchase price-cap from $1M to $1.5M for insured mortgages. Long story short, they reduced monthly payments while allowing those with less than 20% down to purchase at higher prices.

3) Demand for housing has been much lower in the past few years. From 2012 to 2021, we averaged apx. 95.5K sales a year. The last 3 years...2022 = 75K, 2023 = 66K, 2024 = 67.6K. People still want to buy homes and it's hard to see deviation from the long-term averages for too long when population has continued to grow. If there truly is pent-up demand, supply and demand balances will likely shift to a tighter market leading to more competition and potentially increased prices.

3 reasons prices could go down in 2025:

1) The Canadian economy is rocky and unemployment in Ontario is at 7.5%. This is higher than the long-term average of 7.37%. While not overly concerning at today's levels, if this were to get worse, it would likely have a negative impact on real estate. Bottom line is that people don't buy homes when they don't have jobs and it does force potential sellers to seriously reconsider whether they can hold onto a property. Less buyers and potentially more sellers would likely result in lower prices.

2) We started 2025 with more inventory than the past few years. Across TRREB, we saw 37,251 active listings to end the year. Last year we saw 34,107 to end the year and in 2022, we saw 25,102 to end the year. This means buyers have more to choose from relative to years past and if the rate of sales doesn't improve, inventory could build up faster than we are accustomed to. When buyers have more choice, they're less likely to 'overpay' for a home and this could put some downward pressure on prices.

3) Tariffs would hurt the economy and likely impact unemployment. Even the threat of tariffs could cause some buyers to pause. If this happens, then it's likely that we wouldn't see as many sales this spring which again could have a negative impact on home prices. Would the government come in with some temporary relief measures or would rates get slashed? It's possible but if nothing else happens, tariffs would be bad news for the economy and real estate.

As mentioned above no one truly knows what will happen. As long as tariffs don't come into play, I'm a little more optimistic (than pessimistic) for 2025 given there's still a huge underlying demand for housing. People still want to own homes. If rates and the numbers make sense, then we should see an uptick in demand. With that being said, 2025 has started off slower than the past few years. Part of this is due to how cold it has been, and another big reason is the uncertainty surrounding tariffs. It will be interesting if we this continues or we see the typical spring uptick.

What are your thoughts? Any other reasons prices could go up or down?