Following an unprecedented real estate boom during the pandemic, the Bank of Canada (BoC) began raising rates to combat inflation. The benchmark rate, which sat at just 0.25% in March 2022, climbed steadily to a 22-year high of 5% by July 2023. This shift impacted everything from home prices to real estate transactions, leading to a slowdown in market activity.
The Recent Rate Decline and Market Impacts
After a prolonged period of high borrowing costs, the BoC made its first rate cut in June 2024, lowering the benchmark rate by 25 basis points to 4.75%. As of January 2025, the rate has further dropped to 3%—the lowest level since September 2022. With several rate announcements scheduled for 2025, market analysts anticipate additional cuts, which could bring renewed energy to the real estate sector.
Historically, lower interest rates have played a key role in stimulating housing market activity. However, other macroeconomic factors, such as economic stability, affordability challenges, and government policy, also contribute to overall market trends. According to the Canadian Mortgage and Housing Corporation (CMHC), while declining rates improve affordability, other factors—such as inflation and economic uncertainty—must also be considered when forecasting the market’s trajectory.
Signs of Market Revival
Although Canada is not seeing the same frenzied market activity as during the pandemic, signs of revival are evident. The CMHC’s latest housing report identifies multiple scenarios that could impact the market, including potential economic slowdowns and government policy changes. However, home sales and prices are generally expected to rebound in 2025, with notable gains forecasted in Alberta and Quebec. In contrast, high-priced markets such as British Columbia and Ontario are expected to see more moderate growth due to ongoing affordability challenges.
According to recent data from the Toronto Regional Real Estate Board (TRREB), home sales in the Greater Toronto Area (GTA) have already increased by 2.6% year-over-year, reflecting cautious optimism among buyers. A recent Ipsos survey found that more than 80% of renters believe that a 2% to 3% drop in interest rates would make homeownership more attainable. With rates already down 1.25% since September 2024, these conditions may encourage more buyers to enter the market in 2025.
Private Lending and Investment Opportunities
For borrowers and investors alike, declining interest rates create unique opportunities. While traditional lenders may still impose strict qualification criteria, private mortgage lenders like Lendworth offer flexible financing solutions. Lendworth specializes in equity-based lending, providing quick approvals and tailored mortgage solutions that help borrowers secure financing while rates continue to adjust.
For investors, Lendworth’s Mortgage Investment Corporation (MIC) presents an attractive opportunity to capitalize on stable, mortgage-backed returns. As more buyers re-enter the market, demand for private financing solutions is expected to grow, making MIC investments an appealing option for those seeking passive income with asset-backed security.
The Pre-Construction and New Home Market
The pre-construction market has faced considerable challenges in recent years, primarily due to high interest rates, rising construction costs, and municipal fees. Housing starts slowed across Canada’s largest cities in 2024, and experts predict further delays in new home construction. In the GTA, for instance, escalating development charges—often passed down to buyers—have significantly impacted affordability.
While lower borrowing costs will help revive some aspects of the pre-construction market, additional factors, such as government policy and development incentives, will play a crucial role in determining its recovery. Buyers and investors interested in pre-construction properties should carefully evaluate financing options, including private lending solutions that can provide greater flexibility in securing new developments.
Beyond Interest Rates: Key Considerations for 2025
Although interest rate reductions are expected to support market growth, they are not the sole determinant of housing trends. Other factors—including immigration targets, housing supply, and potential policy shifts—will continue to shape the real estate landscape. Additionally, with a federal election on the horizon, potential regulatory changes could influence market dynamics in the coming year.
At Lendworth, we remain committed to providing expert guidance and tailored mortgage solutions to meet the needs of borrowers and investors. Whether you’re looking to secure a private mortgage, invest in a MIC, or refinance an existing property, our team is here to help navigate the evolving real estate market.
For more information on Lendworth’s mortgage solutions and investment opportunities, contact us today.