A housing development in the west end of Ottawa in May 6, 2021.Sean Kilpatrick/The Canadian Press
To help make sense of 2025, The Globe and Mail asked dozens of experts, including economists, investors, academics and business leaders, to each choose a chart they think will be important to watch this year.
House poor
Mike Moffatt, founding director, PLACE Centre at the Smart Prosperity Institute
Canada’s housing supply shortage is largely a made-in-Ontario crisis. While British Columbia has been able to build a large number of apartment units (condos and rentals), and Alberta has scaled up all forms of home building in response to population growth, Ontario is sliding backward. A combination of municipal red tape and sky-high and rising taxes and charges on housing development has made it cost-prohibitive to build in the province. Over the past four years, 100,000 more people have moved out of Ontario to other provinces than made the opposite move. Alberta is calling, and Ontarians are leaving in droves due to a lack of attainable family housing.
First time’s the charm
James Orlando, director of economics, TD Bank
This chart shows Canada home sales, which are steadily building following Bank of Canada rate cuts. With new affordability measures coming for first-time homebuyers, it’s starting to look like 2025 will result in a revival of Canadians’ favourite pastime: talking about rising home prices!
Masters of our own fate
Karl Schamotta, Corpay Currency Research
Donald Trump’s social media posts provided the proximate trigger for the Canadian dollar’s decline at the end of 2024. Tariffs on the scale he has threatened could inflict serious damage on the Canadian economy and drive the exchange rate much lower.
But the conditions for the loonie’s weakness were put in place long ago. To a significant extent, nearly everything going wrong in the Canadian economy – weak consumption, soft housing markets, stagnant business investment and poor productivity – can be traced back to the astonishing rise in household leverage that preceded the monetary tightening cycle after COVID-19 took hold. With elevated interest rates intersecting with high debt loads, the share of disposable income going to debt payments has risen well beyond comparable levels in other Group of Seven countries, limiting household spending in other categories and compounding Canada’s vulnerability to external shocks.
It may be tempting to blame underperformance of the economy and exchange rate on the next occupant of the White House, but the reality is that many of Canada’s problems were manufactured here at home.
Unyielding yields
Brett House, economics division, Columbia Business School
Starting in June, 2024, the Bank of Canada reduced its key policy interest rate – its target rate for overnight lending – by 175 basis points (bps), from 5 per cent to 3.25 per cent at the end the year. But the yield on five-year Government of Canada bonds fell by just 54 bps over the same period, owing to concerns that inflation hasn’t been fully slayed and that trade tensions, aging populations and competition for capital will keep rates higher than in past economic slowdowns.
The interest rate on a five-year fixed-rate mortgage, the most popular type, is based on these bond yields. Markets anticipate another 50 to 75 bps in Bank of Canada rate cuts this year, in line with only another 20 bps decline in major mortgage rates. Canada Mortgage and Housing Corp. data imply that more than one million homeowners will renew their mortgages this year at rates 100 to 225 bps higher than their existing terms. With supply still tight, housing affordability won’t improve in 2025 and could get worse unless bond yields fall further.
The story of Canadian housing
Anthony Scilipoti, founder and CEO, Veritas Investment Research
The long-term decline in interest rates, from a peak near 20 per cent in the early 1980s to historic near-zero lows during 2020-21, has been a significant driver of rising house prices. Unemployment peaked during recessionary periods, coinciding with falling interest rates as monetary policy responded to economic downturns. While house prices typically responded to lower rates with delays, the early 1990s stand out as a period when housing prices stagnated for a decade despite falling bond yields and unemployment.
The period since 2021 marks a sharp departure from the long-term trend of falling rates. This abrupt change poses a significant challenge for homeowners, as rates directly impact affordability. It’s also noteworthy that the Bank of Canada’s lowering of short-term rates has done little to drag down longer-term rates.
Unemployment has also risen over the past two years. Housing starts have slowed notably, and with more than 10 per cent of Canadian employment tied to construction and related industries, further unemployment increases seem likely. This could weigh on housing prices, which have recently plateaued from their peak.
The potential for rising unemployment and the current rate environment suggest that the present housing-market stability may be precarious, with downside risks intensifying in the near term.
The young and the houseless
Bryan Yu, chief economist, Central 1
Canadian housing market traction rose in the late stages of 2024. Interest rate cuts and improved affordability have stirred home sales, particularly in the largest urban markets, while announced measures to boost financing availability through increased mortgage insurance price thresholds and extended amortization products added to demand. Pent-up demand from a period of robust population growth has contributed to higher sales.
Even so, the 2025 housing outlook is uncertain. While the Bank of Canada will continue to cut rates, fixed mortgage rates remain firm due to high U.S. rates and bond yields, population growth is set to stall and the economy faces potential trade-policy-driven weakness.
We’re watching the market for young households that have been shut out of the homeownership market in recent years. Mortgage liabilities have been in decline for young households and, in our view, not due to conscious deleveraging, but to lack of financing availability. In contrast, liabilities have risen for other age cohorts.
We expect a rebound in housing demand from young households to drive a market recovery. Improved financing conditions, more flexible financing products and wage growth incentivize demand, while lower interest rates will also trigger wealth transfer from parents and grandparents as guaranteed investment certificate rates decline. Entry-level buyers should provide support for the market for new condominiums, grease the chains for move-up purchases and support a broader recovery in the housing market and prices.
Brace for impact
William Robson, CEO, C.D. Howe Institute
The most popular mortgage type in Canada is the five-year fixed interest rate. While the difference between the five-year fixed rate on new mortgages relative to outstanding mortgages has come down, it still remains elevated. This means that many Canadian mortgage holders are going to be facing sticker shock when their mortgages are up for renewal in 2025.