Canadian Housing Report: Bracing for 2025, Interest Rate Cuts Ignite Optimism Amid Economic Uncertainty

Written by Breck Hapner

Editor’s note: Welcome to the HAVEN State of the Canadian Housing Market series. Every month, we will share an update explaining details and projections related to Canada’s real estate sector to keep you informed.

The Canadian Real Estate Association (CREA) has released its September data, showing modest sales growth despite earlier spring confidence that rate cuts would bring buyers back to the market. In an October 15th Financial Post article, CREA noted that buyers are awaiting further rate cuts—an expectation met on October 23rd, when the Bank of Canada (BoC) cut its key interest rate by 50 basis points to 3.75%.

According to CREA’s October 15th report (data spreadsheet available in the National Residential Statistics section), the benchmark price was up slightly from $717,800 in August to $718,200 in September. Meanwhile, the average price rose substantially from $649,059 in August to $669,630 in September. National home sales rose 1.9% month-over-month (MoM) for September, marking the third consecutive monthly increase.

In the CREA landing page video, “Canadian Home Sales Edge Up Again Following Third Interest Rate Cut,” Senior Economist Shaun Cathcart stated, “Home sales increased month-over-month, albeit only by 1.9%, which isn’t huge, but it’s also not nothing. So, if you think back to June and August, those were also months that were following a rate cut, and they also saw sales increase. So we’re now three-for-three on residential sales rising after a rate cut, and that, my friend, is a trend.”

With inflation trending down, a larger BoC rate cut may be forthcoming. According to an October 15th Globe and Mail article, Canada’s inflation rate fell below 2%, the lowest since February 2021, just before the pandemic’s effects led to inflationary pressures.

BoC rate cuts can help the real estate market, and Cathcart pointed out that “expectations around the future path for interest rates have changed dramatically, as opposed to this multi-year track back to what the Bank of Canada considers a neutral rate, which would be something like 150 basis points below where we are today. Markets now expect the bank to get there by sometime around next spring or summer a lot faster and with a lower terminal rate as well, so that means where rates finally bottom out might be lower.”

CREA expects additional BoC rate cuts, citing three sources. The September 26th TD Economics report predicts two more cuts this year, although it also notes these cuts could coincide with a weakening economy and job market.

In a September 26th Financial Post video, Deloitte Chief Economist Dawn Desjardins said the BoC was prepared to cut rates by 25 basis points per meeting until summer 2025, though she cautioned that this easing is unlikely to occur amid a strong economy.

“Consumer confidence, in particular, is really quite depressed,” said Desjardins. “Certainly, we’re looking at things like . . . inflation coming down, interest rates starting to come down, but still, affordability [is] very constrained, and labor market conditions [are] starting to weaken.”

These cuts aren’t occurring in isolation, and for the market to align with CREA’s expectations, the economy will need to remain stable, according to Desjardins: “It has been a relatively stable market, and as we move forward with rates coming down, some clarity that the job market is holding does suggest that we will see a pickup in housing activity as we go through 2025.”

The third source cited by CREA, an August 26th Bloomberg article, stressed that the BoC has increased flexibility for cut rates given a weakening U.S. labor market. The article noted that with the Federal Reserve’s recent rate cuts, BoC Governor Tiff Macklem now has more room to normalize borrowing costs without inflationary pressures from currency fluctuations.

Since then, the U.S. has added 250,000 jobs, leading to a more cautious approach to future rate cuts from the Fed. Therefore, based on the aforementioned sources, CREA’s forecast may be less assertive, especially with little to no mention of the weakening economic backdrop in its October 15th report.

Nonetheless, CREA remains confident about house prices heading into 2025. Cathcart stated, “We’re forecasting an average national home price of around $713,000 next year, which would be up about 4.5% from this year.”

With the current average price at $670,000, CREA anticipates a $30K–$40K increase by this time next year. Cathcart seems optimistic in this prediction: “Just as a final note, I think with interest rates to do what they’re expected to do, the risk here is that a lot of our forecast numbers we just published might end up being stronger.”

Following the BoC’s October 23rd rate cut, unaffected 5-year government bond yields rose based on events happening in the U.S., meaning no change to fixed mortgage rates. In its October 23rd Monetary Policy Report Press Conference Opening Statement, the BoC expressed satisfaction with the decline in inflation but acknowledged upside risks such as housing market resurrection and wage growth.

If house prices increase significantly, spurring inflation, the BoC may reconsider its approach to rate cuts. In the video “Release of the Monetary Policy Report,” Governor Macklem also emphasized some downside risks to inflation, stating, “. . . it could take longer than anticipated for household spending and business investment to pick up.”

According to Macklem, decisions surrounding rate cuts will rely on real-time data: “The timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook.”