Canada’s dynamic housing market is poised for a significant bifurcation in 2025, charting distinctly different trajectories for various property types. A new, comprehensive report from CIBC economists Benjamin Tal and Katherine Judge paints a compelling picture of what’s to come, outlining a “tale of two markets” that will profoundly impact buyers, sellers, and investors across the nation. While low-rise homes are anticipated to experience a robust resurgence, the high-rise condominium sector faces a more arduous and uncertain journey ahead, characterized by persistent challenges and potential for prolonged softness. This divergence is driven by a complex interplay of factors, including evolving mortgage rates, shifting immigration policies, and critical imbalances in housing supply and demand.
A Tale of Two Markets: Low-Rise Resurgence vs. Condo Conundrum
According to CIBC’s insightful housing outlook for 2025, the Canadian real estate landscape will be defined by contrasting performances. The low-rise segment, encompassing detached homes, semi-detached properties, and townhouses, is expected to be the first to demonstrate resilience and upward momentum. Economists Tal and Judge highlight that this sector is particularly sensitive to declining mortgage rates. As borrowing costs become more manageable, pent-up demand, which has been building during periods of high interest rates, is anticipated to be unleashed. Crucially, the low-rise market currently grapples with historically low inventories. This scarcity means that any significant increase in buyer demand will directly translate into accelerated home price inflation, creating a competitive environment for prospective purchasers. Families seeking more space, first-time homebuyers leveraging improved affordability, and those looking to upgrade will likely fuel this rebound.
Conversely, the high-rise condominium market is projected to remain under considerable pressure throughout much of 2025. This segment has been languishing in what Tal and Judge describe as “recessionary territory” for several quarters, a trend that shows little sign of immediate reversal. The primary headwinds facing the condo market are multifaceted: an ongoing oversupply of units, waning interest from investors, and persistent affordability concerns. Record-high condo completions across major urban centers are exacerbating the existing supply glut, continuously adding new inventory to an already sluggish market. This influx of units means that even as demand slowly picks up, the sheer volume of available properties will likely keep resale prices suppressed, preventing any significant recovery in the near term. Investors, who traditionally play a substantial role in the condo market, are retreating due to higher carrying costs, slower appreciation prospects, and a more competitive rental market in some areas, further reducing demand and extending the period of price stagnation.
Immigration and Population Growth: A Reality Check on Housing Demand
Canada’s housing market dynamics are inextricably linked to its population growth, particularly immigration. The federal government recently introduced revised immigration targets, with policymakers projecting a rare population decline of 0.2 percent in 2025, primarily through reduced visa issuances, aiming to alleviate pressure on housing demand. However, Tal and Judge express strong skepticism regarding the feasibility of this ambitious goal.
The economists argue that significant enforcement challenges, coupled with an anticipated rise in asylum and humanitarian claims, make such a pronounced population drop highly improbable. They contend that the actual net departures from Canada will likely be closer to half of the 446,000 assumed by the government. Instead, CIBC projects a more realistic population growth rate of approximately 1 percent in 2025. This seemingly modest percentage translates into a substantial requirement for an additional 200,000 housing units nationwide. The majority of this increased demand, the report emphasizes, will predominantly manifest within the rental sector, putting continued strain on an already tight market despite some signs of stabilization. This discrepancy between government targets and economic projections underscores the persistent underlying demand for housing, regardless of official policy adjustments.
Navigating the Rental Market: Stabilization Amidst Persistent Challenges
After several years of relentless growth, Canada’s rental market appears to be nearing a crucial inflection point, with signs of stabilization emerging on the horizon. The relentless upward trajectory of rental price inflation may be peaking, offering a glimmer of hope for renters grappling with soaring costs. CIBC’s analysis indicates early signals of a slowdown, primarily driven by “affordability erosion.” This phenomenon suggests that rental costs have climbed so high that they are pushing the limits of what tenants can reasonably afford, leading to a natural cooling of demand at the very top end of the market.
According to Tal and Judge, the year-over-year growth in asking rates for rentals has already moved into negative territory in some areas, suggesting a modest reprieve from the rapid price increases witnessed recently. This trend is expected to continue into 2025, providing a degree of easing pressure on renters, particularly those in the most competitive urban centers. However, it’s crucial to understand that “stabilization” does not equate to a significant drop in rental prices. Rather, it implies a slowing of the aggressive upward trend. Rental costs remain historically high, and the projected population growth of 1% in 2025, particularly the demand for 200,000 new housing units predominantly in the rental sector, will ensure that the market remains fundamentally tight. While the pace of increases may slow, true widespread affordability for renters will likely remain a distant prospect for the foreseeable future, emphasizing the need for sustained efforts in purpose-built rental construction.
The Looming Supply Crunch: Weak Pre-Construction Signals Future Shortages
The broader Canadian housing market is set for a significant uplift in activity, buoyed by the prospect of falling mortgage rates. CIBC economists forecast an impressive 12 percent rise in overall resale activity for 2025, indicating a renewed sense of confidence among buyers and sellers. However, this recovery will be far from uniform, with a clear disparity between different housing types. The low-rise housing segment is expected to outperform the condo market, benefiting from tighter inventories and stronger underlying demand conditions that align well with evolving consumer preferences.
A critical factor contributing to the anticipated low-rise rebound is the current scarcity of available units. “Inventories of low-rise units are tight,” the report notes, “reflecting the drop off in homebuilding seen during the Bank of Canada’s tightening cycle, and that’s only now starting to reverse.” This suggests that a lag in new construction due to higher interest rates has created a supply deficit that will be quickly absorbed once rates decline, further boosting prices in this segment.
Perhaps the most concerning aspect of the CIBC report is the warning of a severe supply crunch extending beyond 2025, particularly within the condo market. The economists highlight weak pre-construction activity in the current period, which is laying the groundwork for substantial supply shortages by 2026 or 2027. This multi-year low in future condo supply will have profound implications. As mortgage rates continue their downward trend, pent-up demand from both end-users (individuals and families looking to purchase) and investors will inevitably be reignited, drawing them back into the market. However, Tal and Judge caution that this “newly found demand will be met with a severe lack of supply given that current pre-sale activity (future supply) is at a multi-decade low.” This impending clash between surging demand and an acute shortage of available units is expected to trigger renewed and potentially significant price surges in the condo market, once the current oversupply is absorbed and future construction fails to keep pace.
Geographic Hotspots: Ontario and B.C. Bear the Brunt of Condo Market Woes
The challenges plaguing Canada’s high-rise condominium segment are not evenly distributed across the country but are acutely concentrated in its two largest and most dynamic provinces: Ontario and British Columbia. These regions, particularly the metropolitan hubs of Toronto and Vancouver, have historically seen a higher proportion of condo purchases by real estate investors. This investor dominance has made these markets particularly vulnerable to shifts in economic conditions, especially rising interest rates and changes in rental market profitability.
In both Toronto and Vancouver, key market indicators such as sales-to-new-listing ratios have decisively fallen into “buyer’s market” territory. This signifies that the supply of new listings is significantly outpacing the rate of sales, providing buyers with more choice and leverage while putting downward pressure on prices. The continued influx of unsold condos, resulting from both recent completions and a slower rate of absorption, further compounds this imbalance. The CIBC report highlights a stark reality: “The current price gap between new and resale condo prices remains near a record high at roughly 60 percent, and a full 20 percentage points above its long-run average.” This substantial disparity makes new condo purchases less appealing for both end-users and investors, as resale options present considerably better value. For condo investment to regain its lost appeal and for the market to achieve stability, the economists assert two critical conditions must be met: resale prices must begin to rise steadily, and interest rates must decline more significantly than currently anticipated, making property ownership more financially viable and attractive for a wider range of buyers.
Looking Ahead: Navigating Canada’s Evolving Housing Landscape
As Benjamin Tal and Katherine Judge concisely summarize, the coming years will present a complex and often contradictory picture for Canada’s housing market. While some segments may experience relief and recovery, the overarching narrative will continue to be defined by fundamental challenges in housing supply and affordability. “By mid-2026,” they caution, “a lack of supply due to the current drought in the condo pre-sale space and an extremely slow increase in purpose-built activity will clash with increased demand due to lower interest rates and recent changes to mortgage regulations, resulting in higher price pressures.”
This forecast underscores a critical period of adjustment and transition for the Canadian housing sector. For prospective homebuyers, understanding these divergent trends will be paramount. Those eyeing low-rise properties may need to act sooner rather than later as competition intensifies, while condo buyers might find more immediate opportunities in a softer market, albeit with an eye towards potential longer-term appreciation once supply tightens. For policymakers, the report serves as a stark reminder of the urgent need for strategic interventions to address the persistent supply gap, particularly in purpose-built rentals and diversified housing types, to ensure a more sustainable and equitable housing future for all Canadians. The “tale of two markets” in 2025 is not merely an economic prediction; it is a critical insight into the evolving fabric of Canadian real estate.