Royal LePage: Canadian Housing Adjusts, Eyes 2025 Rebound

The Canadian real estate market presented a complex picture in the third quarter of this year, characterized by both modest growth and signs of deceleration. According to the latest Royal LePage House Price Survey, the aggregate price of a home across the nation saw a 1.6 percent year-over-year increase, reaching an average of $815,500. While this annual gain suggests resilience, a closer look reveals a 1.1 percent decline quarter-over-quarter, indicating a period of subdued summer sales activity throughout much of the country. This duality points to a market in transition, where underlying demand battles with affordability pressures and evolving buyer sentiment.

Despite the recent dip in quarterly performance, the market appears to be on the cusp of recovery. September witnessed an encouraging uptick in sales volumes, a crucial indicator of renewed buyer interest. Furthermore, nearly 40 percent (38 percent) of Canada’s regional markets reported positive price growth during the third quarter, signaling that recovery is not uniform but rather a mosaic of local dynamics. These early signs offer a glimpse into a potential reacceleration of the market, driven by changing economic factors and strategic policy adjustments designed to enhance homeownership accessibility.

Buyer Hesitation Lingers Despite Interest Rate Adjustments

Despite the Bank of Canada implementing three cuts to its overnight lending rate, buyer demand across the nation has remained notably soft. Phil Soper, president and chief executive officer of Royal LePage, highlights that this hesitation is particularly pronounced among two critical segments: first-time homebuyers and small-scale investors. These groups, often more sensitive to the ebb and flow of interest rates and borrowing costs, have adopted a cautious “wait-and-see” approach, delaying their entry or re-entry into the market.

First-time homebuyers, who typically represent the fresh influx of demand crucial for market vitality, perceive little urgency to commit. With national home prices remaining largely flat and interest rates showing a gradual downward trend, they feel no immediate penalty in postponing their significant purchase. The expectation of further rate cuts and potentially more favorable pricing conditions in the near future fuels this cautious stance, as they weigh the benefits of waiting against the risks of a rising market. This segment’s return is vital for broad market strength, and their current hesitation acts as a significant drag on overall activity.

Small investors, particularly those focusing on purchasing condominiums for rental income, also face considerable headwinds. Elevated borrowing costs have rendered these investments financially less attractive. The carrying costs associated with property ownership, including mortgage payments and maintenance, frequently surpass potential rental income, eroding profitability and investment appeal. This imbalance discourages new acquisitions and can lead to a shortage of rental units in some areas. Soper believes that both these pivotal groups will re-engage with the market in substantial numbers once property values demonstrate a clear upward trajectory, making investment more appealing and ownership more compelling. With additional rate cuts anticipated from the Bank of Canada before the year’s end, the prospect of faster price appreciation could soon diminish the advantages of waiting, enticing these crucial buyer segments back into action.

New Mortgage Rules and Increased Readiness Poised to Boost Affordability

The real estate landscape is also being shaped by an increasing supply of homes and new regulatory changes designed to enhance affordability. Royal LePage reports a historic surge in total listings on royallepage.ca in September, marking a remarkable 19 percent increase year-over-year. This significant rise in available properties signals a growing readiness among existing homeowners to sell and relocate. For potential buyers, this expanded inventory translates into more choice and reduced competition, which is a welcome shift after years of tight supply conditions that often led to bidding wars and rapidly escalating prices.

Compounding this positive trend are the recently announced new regulations regarding mortgages and lending practices in Canada. These strategic adjustments are specifically tailored to alleviate some of the persistent affordability challenges that have hindered homebuyers, particularly in higher-priced urban centers. While the specifics of these changes are still being digested, they are broadly expected to stimulate market activity by making homeownership more attainable for a wider range of Canadians.

Phil Soper suggests that these regulatory changes will have a more profound impact on the early 2025 market than many currently anticipate, predicting “a material bump in activity.” He elaborates that these changes are not solely beneficial for first-time buyers; by raising the cap on insured mortgages, they also expand opportunities for “move-up” buyers in more expensive markets. This crucial mechanism facilitates a chain reaction: when move-up buyers can transition to larger or more desirable properties, they simultaneously free up existing inventory, creating openings for new homeowners entering the market. This dual impact helps address both demand-side access and supply-side availability. However, Soper wisely cautions that while these new rules are a positive step, they should not be seen as a “silver bullet” for Canada’s long-standing and urgent housing supply needs, emphasizing that systemic issues require broader, multi-faceted solutions beyond mortgage regulations alone.

Young Canadians Remain Bullish on Homeownership; Consumer Confidence on the Rise

Despite ongoing affordability challenges and market fluctuations, young Canadians harbor a robust and enduring belief in the value of homeownership. A recent Royal LePage survey revealed that an impressive 84 percent of Canadians aged 18 to 38 view homeownership as a worthwhile investment. This demographic understands the long-term benefits of property ownership, including wealth accumulation, stability, and protection against inflation, reinforcing its status as a cornerstone of financial planning.

Among those in this age group who do not currently own a home, a significant 75 percent express a clear intention to purchase property as their primary residence. Furthermore, 40 percent of these aspiring homeowners plan to achieve this goal within the next five to ten years. This demonstrates a deep-seated commitment to homeownership that transcends current economic headwinds. In the report, Soper acknowledges the formidable obstacles faced by this cohort: “The youngest cohort of homebuyers in Canada have no shortage of barriers on their path to ownership. Though the cost of borrowing has begun to come down, chronic supply shortages have kept housing prices from dropping, even as demand softened under the weight of high interest rates.” Yet, he notes their remarkable resilience: “Despite these hurdles, the next generation of homebuyers remains committed to their pursuit of owning real estate, and are remarkably optimistic that they can make their dream a reality.” This optimism is a powerful force driving future demand.

Adding to this positive outlook, broader consumer confidence is also on an upward trajectory. The Conference Board of Canada reported a 3.3 percent increase in its Index of Consumer Confidence in September, reaching its highest level in over a year. This surge in confidence suggests that Canadians are feeling more secure about their financial futures and the overall economy. Consequently, more individuals are now expressing optimism about making significant purchases, including homes, which bodes well for the real estate market in the coming months.

Mortgage Renewals at Higher Rates Amid Easing Interest Rates

While the Bank of Canada is signaling a gradual softening of interest rates, a significant segment of Canadian homeowners is grappling with a different reality: mortgage renewals at substantially higher rates. Many individuals who secured ultra-low fixed-rate mortgages before March 2022, during a period of unprecedentedly low borrowing costs, are now facing the challenge of adjusting to significantly increased monthly payments upon renewal. This “payment shock” represents a considerable financial strain for households that had grown accustomed to lower housing expenses.

Soper notes that even with anticipated further rate cuts from the Bank of Canada, these reductions are unlikely to be deep enough to completely eliminate the financial burden for those still holding pandemic-era mortgages. The gap between their original low rates and current market rates remains substantial, meaning many will still see a notable increase in their housing costs. As a result, some homeowners may be compelled to explore difficult decisions, such as relocating to more affordable areas to reduce their expenses or downsizing to smaller, less costly properties. However, Canada’s robust and often conservative lending practices have historically positioned most homeowners to manage these adjustments, albeit with some level of financial discomfort. The market is expected to absorb these transitions, but it underscores the ongoing impact of interest rate cycles on homeowner financial planning.

Regional Real Estate Trends: A Patchwork of Recovery

Much like the real estate boom driven by the pandemic, the current market recovery in Canada is unfolding unevenly, creating a patchwork of regional experiences. Major urban centers, particularly Toronto and Vancouver, continue to lag behind in their recovery trajectory. These cities are grappling with persistent affordability challenges stemming from their high average home prices and often limited housing supply. Consequently, they experienced lower-than-expected sales activity throughout the spring and summer months, as buyers in these expensive markets remain cautious or priced out.

Conversely, markets in Quebec and the Prairie provinces have demonstrated greater resilience during the period of elevated interest rates. These regions, often characterized by more affordable housing options and diverse economic drivers, have shown more consistent demand and stable pricing. Soper points out that Alberta, in particular, has benefited from significant population growth, largely fueled by interprovincial migration from more expensive provinces like Ontario and British Columbia. This influx of new residents translates directly into increased housing demand, contributing to market strength. In contrast, the post-pandemic surge that propelled Atlantic Canada’s real estate market has moderated, settling into a more balanced and sustainable pace of growth. These distinct regional performances underscore the importance of local market analysis and the varied factors influencing housing dynamics across Canada.

Market Forecast: Stronger Growth Anticipated in 2025

Looking ahead, Royal LePage’s forecast for the Canadian real estate market anticipates a stronger performance. The company projects a 5.5 percent year-over-year increase in the aggregate home price for the fourth quarter of 2024. This revised forecast, however, takes into account current market realities, particularly the slower-than-anticipated sales activity observed in key metropolitan areas like Toronto and Vancouver, which traditionally heavily influence national averages. The market’s reaction to economic shifts and policy changes will be crucial in shaping this outlook.

Phil Soper expresses confidence in the market’s trajectory, anticipating that recovery will continue across most regions next year. He foresees the potential for significant price appreciation as the market responds positively to both lower interest rates, which are expected to stimulate buyer demand, and the impact of the new lending rules, which will improve affordability and accessibility. “The market recovery, albeit uneven across the country, is well underway in a majority of markets,” Soper states. He acknowledges that while significant price appreciation might not materialize during the typically slower fourth quarter of the current year, the previously forecasted gains are expected “to come to fruition in the anticipated early spring market of 2025.” This long-term perspective suggests that while the immediate future might see continued variability, the underlying conditions are aligning for a more robust and sustained growth phase in the Canadian housing market.

For a deeper dive into specific regional trends and comprehensive data, readers are encouraged to review the full report, which includes detailed regional summaries and expert insights.