Market Recovery 2025
Toronto’s real estate market is showing signs of recovery so far this year, with industry insiders predicting increased activity as early as February or March. Stabilizing interest rates, the return of sidelined buyers, and a potential boost in inventory are key factors driving this outlook. Many expect a more traditional spring surge in market activity, fuelled by pent-up demand after a relatively flat 2024.
This anticipated rebound found a significant increase in the number of sales in late 2024, but the slight increase in the number of new listings wasn’t enough to prevent competition in the market, especially for single-family homes. This resulted in a tightening of the market and year-over-year price increases. Renewed buyer activity may encourage more homeowners to list their properties, contributing to a healthier market balance.
Mortgage Renewals Could Drive Listings
A significant wave of mortgage renewals in 2025 is expected to add to the available housing inventory, as some homeowners face higher borrowing costs and may consider downsizing. The Canada Mortgage and Housing Corporation (CMHC) reports that approximately 1.2 million mortgages will be renewed this year, with many transitioning from the historically low rates of 2020–2021 to rates exceeding 3%.
This influx of listings could provide much-needed options for buyers, particularly in Toronto, where recent conditions have slightly shifted in favour of purchasers.
Buyer Activity and “FOMO” on the Horizon
With interest rates now hovering around 3.25% and potentially trending lower, many expect buyer competition to intensify during the first half of 2025. First-time buyers and end-users are predicted to drive sales, possibly reigniting the fear of missing out (FOMO) that has historically pushed the market forward.
Challenges for Investors and the Condo Market
Investors in Toronto’s condo market face ongoing challenges. High borrowing costs, sluggish rental income growth, and declining profitability have led to increased listings. Recent data from Urbanation reveals a dramatic 81% year-over-year drop in new condo sales for Q3 2024—the lowest since 1995. Meanwhile, condo ownership costs have surged by nearly 60% since 2020, outpacing rental income growth.
This challenging environment for investors may exacerbate a future housing shortage, as constrained development and rising costs deter new projects. Builders face mounting pressure to pivot toward family-sized units, which are increasingly in demand, rather than smaller investor-focused units.
Bright Spots in a Shifting Market
Amid these challenges, signs of resilience exist in less conventional segments of the condo market. Larger units in older buildings and boutique-style condos are gaining traction, offering more space and value than the compact, investor-driven units prevalent in the downtown core.
Price increases will be driven by sales of single-family homes, particularly detached and semi-detached homes.
However, broader uncertainty persists. Political instability within Canada and geopolitical tensions stemming from the new Trump administration in the U.S. could create headwinds for the Canadian economy, potentially impacting buyer confidence and market stability.
While the road ahead may not be without hurdles, the long-term outlook for Toronto real estate remains positive. This is underpinned by strong immigration levels and enduring demand for housing in one of Canada’s most dynamic cities.
