Are Canadian Real Estate Prices Overvalued?

Although the RE/MAX 2025 Canadian Housing Market Outlook anticipates that 44 per cent of regions will shift to a sellers’ market, another 33 per cent will move into a balanced one. A hefty 17 per cent of locales are predicted to enter into a buyers’ market, while six per cent will likely experience mixed market conditions.

The estimated breakdown by area is as follows:

• Sellers’ Market: 44 per cent (Victoria, BC, Greater Vancouver Area, BC; Edmonton, AB; Regina, SK; Sudbury, ON; North Bay, ON; Simcoe County, ON, York Region, ON, Windsor, ON, Thunder Bay, ON, Kenora, On, Fredericton, NB, Saint John, NB, Halifax, NS, Truro & Colchester, NS, and St. John’s Metro, N.L)
• Balanced Market: 33 per cent (Vancouver Island, BC, Kelowna/Central Okanagan, BC; Winnipeg, MB, Kitchener-Waterloo, ON; Mississauga, ON; Brampton, ON; Durham, ON; Toronto, ON, Ottawa, ON; Sault Ste. Marie, ON, Kingston, ON, and Prince Edward Island)
• Buyers’ Market: 17 per cent (Hamilton, ON; Burlington, ON; Peterborough, ON; Kawartha Lakes, ON; Muskoka, ON; and Haliburton, ON)
• Mixed: 6 per cent (Calgary, AB and Niagara, ON)

In summary, for 2025, although a sellers’ market will still predominate in many areas, the combination of balanced and buyers’ markets in other locales bodes well for somewhat lowered housing valuations across Canada.

Deflating Housing Bubble Risks

In recent years, the real estate sector paid close attention to the annual UBS Global Real Estate Bubble Index. Toronto has typically made it in the top five, joining other major cities, such as New York, London, Paris, and Los Angeles. For the Swiss wealth management firm’s 2024 rankings, Toronto placed fifth, ahead of Geneva and just behind Los Angeles.

According to the report, “Miami now shows the highest bubble risk among the cities in this study. High bubble risk can also be seen in Tokyo and, despite a significant decline in the score compared to last year, Zurich. An elevated risk of a housing price bubble is evident in Los Angeles, Toronto, and Geneva. Only a moderate risk is recorded in Amsterdam, Sydney, and Boston. In the same risk category are, after very strong reductions in imbalances, Frankfurt, Munich, Tel Aviv, Hong Kong, Vancouver, Dubai, Singapore, and Madrid.

Inflation-adjusted housing prices in the cities analyzed are now, on average, roughly 15 per cent lower than in mid-2022, when interest rates started to surge globally. The cities recording the strongest price corrections are those that displayed a high risk of a real estate bubble in previous years. Real prices in Frankfurt, Munich, Stockholm, Hong Kong, and Paris are 20 per cent or more below their post-pandemic peaks. Vancouver, Toronto, and Amsterdam recorded significant price declines of around 10 per cent in real terms.”

But will Toronto’s and Vancouver’s reduced bubble risk hold?

And is there a looming Montreal real estate bubble, or worse, a Montreal real estate market crash to come?

Not likely, according to the RE/MAX Lacasse/Shapcott team: “Montreal buyers were not deterred by economic uncertainties and still relatively high interest rates in the first part of the year. In search of asset stability, they maintained sustained demand throughout the year. This pressure has led to an increase in sales, but also in prices in certain sectors, particularly those offering well-located properties or with strong potential for value enhancement.”

Heading into 2025, both economists and RE/MAX real estate agents believe activity is poised to remain strong amid much lower borrowing costs and more favourable mortgage rules for buyers – including an increase in the maximum mortgage amortization period for first-time homebuyers from 25 to 30 years, changes that also allow buyers to put down less than 20 per cent on a home worth up to $1.5 million, and the elimination of the mortgage stress test requirement for straight, stand-alone uninsured renewal switches.

As a result, the national average residential price is anticipated to increase by 5 per cent, and sales to rise in 33 out of 37 regions surveyed, with sales increases of up to 25 per cent in some places.

Will Anticipated Mortgage Rate Reductions in 2025 Add Fuel to the Fire?

The Bank of Canada (BoC) is widely anticipated to continue cutting interest rates in 2025, although likely at a slower pace than in 2024.

BoC chief Tiff Macklem noted that the housing market is picking up, but a rate cut could fan the flames of home-buying. “Could that rebound be stronger than we’ve expected? Yes, it could,” he said. “And that is an upside risk.”

Some predict the BoC will cut today’s rate of 3.25 per cent by 0.75 per cent by the end of 2025, while others predict a rate of two per cent by the end of the year.

Is it a Good Time to Buy a House?

Based on current market trends, it might be a good time to buy Canadian real estate, as interest rates are expected to remain stable or decline further in 2025, creating better conditions for a more buyer-friendly market driven by developers’ anticipated willingness to build more affordable housing units coupled with government incentives to tackle Canada’s housing shortage. Still, it’s crucial to create a budget which considers your individual financial situation and local market conditions and includes ALL the monthly carrying costs of home ownership before making a decision.

Contemplating buying or selling a home soon, or want more information about the Canadian real estate market? Connect with a RE/MAX agent and see the difference that adding an experienced real estate professional to your team can make.