Here we are again! Another year has rolled around, and we’re left wondering: what will 2025 bring? The broader world seems to be navigating turbulent waters, but what about Toronto real estate? Will it follow suit with its own ups and downs?

Typically, I’d dive into a list of predictions for the year, based on my experience in the Toronto real estate market and my read of the stats. While I’ve hit more bullseyes than misses over the years, this time I’m switching things up. Instead of simply forecasting what’s ahead, let’s explore the forces that might shape 2025—those pushing the market toward more transactions and higher prices, and those creating headwinds. Whether you’re a homeowner rooting for higher prices or a buyer hoping for relief, these dynamics will define your 2025.

Tailwinds: What’s Pushing the Market Up?

Interest Rates Descend from Lofty Heights

Falling interest rates will continue to be the big headline this year. With five rate cuts in the past 12 months, mortgage payments are down, and buyers can afford more home than they could a year ago. Lower rates, coupled with eased qualifying measures, are setting the stage for a rosier market in 2025. The December cut of 50 basis points will continue to ripple through the system, likely bringing more buyers back to the market as affordability improves.

While we might see another rate cut or two this year, the pace will likely slow. Why? Canada can’t afford to stray too far from the U.S. interest rate cycle without economic consequences. Even so, lower rates should fuel more transactions—and eventually higher prices.

Government Incentives

The government has been rolling out initiatives to lure buyers back into the market. First-time buyers can now put down 20% on properties up to $1.5M, up from $1M, thanks to policy changes. Additionally, amortization periods for first-time buyers purchasing new builds were extended from 25 to 30 years in August 2024.

While these measures are aimed at boosting first-time buyer activity, their real-world impact might be limited. Inventory shortages in the segments these buyers want still pose a significant challenge. Nonetheless, these efforts signal the government’s intent to keep the market moving.

Headwinds: What’s Holding the Market Back?

Inventory: Still Playing Catch-Up

Throughout 2023 and 2024, transactions lagged behind the 20-year average, while inventory steadily climbed. Though inventory levels started to recede in October 2024, there’s still a lot of it—particularly in the condo segment. Many units, especially pre-construction condos and tenant-occupied apartments, remain overpriced and challenging to sell.

Starter homes in high-demand neighbourhoods are still commanding attention and driving competition. There is not a lot of built-up inventory here.

Just remember, with more transactions, we may not see prices go up right away.

Sellers Returning in Droves

Lower rates may have buyers returning, but sellers are also eyeing the market. Many have been holding off, waiting for a stronger environment to list their properties. Add to this a wave of sellers facing mortgage renewals at higher rates, and we could see a surge in listings. While rates are coming down, they’re unlikely to revisit the sub-2% lows of five years ago, potentially motivating more sellers to act sooner rather than later.

Immigration Slowdown’s Ripple Effect

Canada’s immigration tap largely turned off in 2024, reducing demand for new housing and leases. While this eased some competition in the housing market, it may also have broader economic consequences. A prolonged slowdown in immigration could exacerbate labor shortages, driving up inflation as businesses compete for workers. This domino effect could destabilize the market further, though I suspect this may play out beyond 2025.

Geopolitical and Economic Uncertainty

External factors like Trump’s potential tariffs on Canadian goods (threatened at 25%) could shake the economy, driving inflation and possibly reversing interest rate cuts. With a likely Canadian federal election on the horizon, political and economic instability might cause buyers to hit pause until the dust settles.

Investors Stay on the Sidelines

The math isn’t working for investors right now. Current rates, while lower than in 2023 and 2024, are still too high to make many investment properties cash-flow positive. With rents levelling off and pre-construction condos still overpriced, investor activity is likely to remain subdued throughout 2025. This inertia will continue to weigh on the pre-construction market.

The 2025 Outlook: Mild Optimism

So, where does all this leave us? Expect 2025 to be much busier than 2024, with much more transactions as lower rates entice buyers back into the fold. Prices will likely see mild upward pressure in the latter half of the year but don’t expect a meteoric rise. The pre-construction segment will remain stuck in its quagmire, and inventory challenges will persist with some housing stock.

For sellers, this isn’t a year to expect 2022 prices, but it’s also not a year to panic. For buyers, your window for bargains may start to close as the year progresses. All in all, 2025 could mark the busiest year since the pandemic—not a boom, but a slow tilt in an upward direction.

 I predict a steady, improving year in Toronto real estate, but there are emerging forces that could really shake things up.