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Tailwinds… Meet Headwinds

Writer's picture: Cam VandersluisCam Vandersluis

As a sort of preview or outlook on the 2025 real estate market in Canada, I would like to respond to an article that I was sent multiple times by clients and friends from the Financial Post. The article is titled “Five reasons that home prices will rise 10% in 2025” and you can read that article here: https://financialpost.com/real-estate/five-reasons-home-prices-will-rise-2025.

 

In the article, the writer opines on a very optimistic outlook for housing prices in Canada citing various factors that he believes will lead to an overall increase of 10% this year to the value of detached homes. That’s an important distinction to make because the condo market is currently being weighed down by declining sales and prices in Toronto and that doesn’t appear to be coming to an end anytime soon.

 

The person who wrote the article is an MBA, CFP and CIM (I’m not sure what those last three letters mean to be honest). Certainly impressive credentials. Ted is also the president, portfolio manager and financial planner at a boutique financial institution. He seems like a reliable source and somebody that would definitely have some interesting insight into this topic.

 

Honestly, read the article for yourself, it’s a pretty easy read that shouldn’t take more than 5 minutes. Personally, I think the writing is pretty basic and that the supporting arguments for his “5 reasons” are rudimentary and simple.

 

Here are his five points and my VERY quick thoughts on each:

 

Delayed purchases have built up demand: correct. In London specifically, we are coming off three of the slowest years for real estate sales in the modern market. There are a lot of people that would really like to move but either a) haven’t found a home that they like or b) can’t sell their own home.

 

Price cap increase on insured mortgages: maybe. In more expensive markets than ours, being able to buy a house up to $1.5M with less than 20% down payment will allow a lot of people that have good incomes but less savings to get the house they really want, or extend their budget. Is this a good thing? We can argue that. But this rule only helps a specific group of people that have high incomes and low cash reserves that are also willing to take on more debt. Which they might not be interested in for reasons we will talk about shortly.

 

Lower mortgage rates: disagree. Fixed rates are probably as low as they are going to go this year, or close to. Variable rates still have a while to catch up but I’m sure will be a hot topic for buyers to consider after another couple of rate cuts (if that happens in the first place). This section of Ted’s article is also rich with phrases like “now is the time to act” and “..risks of waiting too long…” It’s really salesy and pushy.

 

House price declines have stopped: maybe. We might be at the bottom, we might not. If you believe everything that Ted writes, you probably think we are. I will explain my thinking in a minute.

 

High immigration rates didn’t stop: wrong. Based on all data available, it would appear that non permanent residents were already leaving faster than they were coming to Canada. The federal government has already lowered net immigration targets and committed to lowering non permanent resident numbers even further. Sure, immigration numbers might be higher than a few years ago, but the massive numbers of the past two years are done.

 

There is the rosy side.


Surprisingly, he didn’t talk about our serious inability to build new housing at a meaningful pace thereby failing to address supply side restrictions. That, to me, is the biggest reason for housing prices to increase. We can’t build houses, period. And while the Toronto condo market is currently in the gutter, new condo builds are at mega all time lows. There is going to be a massive supply shortage in the coming years which will inevitably lead to an increase in condo prices. This seems like low hanging fruit to me that could have helped make his argument.

 

My biggest issue with the article is that he doesn’t provide any counter view point further enhancing the idea that he is pushing a salesy narrative of “don’t miss out”. I always laugh when people feel the need to say that, it does the opposite of what they hope it will. It’s a turnoff. And to not explore the other side of this coin is irresponsible, especially from somebody that advises people on how to invest their money.


What is the downside??? Well, here it is!

 

Our economy sucks and we are definitely in a recession on a per capita basis. Hands up if you cringe at the cost of basically everything right now. Surely not just me. If the general population doesn’t feel good about their monetary situation, do you think they are excited about the housing market? Likely not. It doesn’t take a rocket scientist to see that the average Canadian is a lot more cautious in making big financial decisions right now.

 

Of course, not everyone is in the same boat and there will always be people that need to buy or sell a house. But the general vibe is that we are in a recession, not just a vibecession.

 

The job market. Unemployment rose every month in 2024 until December when it declined from 6.8% to 6.7%. It’s a decline but not something to write home about. Is there a possibility that unemployment continues to rise? There sure is. Especially where you consider where majority of “new jobs” were created in 2024: the public sector. The federal government hired seemingly anyone and everyone that sent in a resume last year. Every jobs report was the same whether it was a net loss or gain: the public sector was the only major expanding sector. Is that likely to come to an end this year? If you think that we are likely to have a blue government at some point in 2025, then definitely. Could they undo a lot of that expansion aka fire a ton of people? Also likely.

 

Do you know what people without jobs can’t do? Buy houses or pay a mortgage.

 

Now, I don’t think that unemployment is going to meaningfully impact the market in a negative way wherein we have mass layoffs and homeowners have to dump their houses because they can’t afford them anymore. But all of my points are in opposition or a counterpoint to the argument that Ted laid out above.

 

Lastly, this is a point I have been making since we moved out of a Seller’s Market. If I own a home, it is hard for me to participate in the market as it is. I don’t have as much confidence that my home is going to sell which leaves me with a couple of options: sell my house before I buy or try to get an offer accepted that is conditional on the sale of my home. The first option there is likely distasteful to a lot of people and the second one is challenging to get accepted.

 

My point is this: for house prices to increase, we need a lot of buyers to hit the market, fast. And majority of buyers are also sellers and are faced with the above situation. So without a lot of buyers and a lot more sales happening, housing prices are likely to move sideways.

 

Buyer sentiment is an important factor here. How does the buyer feel the market is going to move. Are they confident in the economy. Is this the lowest that housing prices are going to go. Are interest rates going to continue going down, or could they potentially go up. There’s a lot happening in the mind of any market participant these days!

 

Of course, certain life situations make all of this moot and some people absolutely have to buy or sell a home. That will always be the case.

 

At the end of all of this, I want to make this clear: I am not arguing that housing prices aren’t going to go up 10% or that housing prices are going to plummet. I simply want to provide a counter viewpoint to this article and provide both positive and negative factors that will impact the market in 2025. I encourage everyone to explore this topic and educate themselves to form their own opinion on the matter. Please share your thoughts with me! I always want to hear what other people think and expand my own knowledge.

 

I wish everyone a successful year ahead and look forward to writing more articles like these. See you soon!

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