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Big news from the Bank of Canada! This Wednesday, they announced a 25-basis point rate cut, bringing the interest rate down to 3%. It’s the lowest the rate has been since September 2022. This is the first of eight rate cuts planned for 2025, and it shows the Bank is taking a slower, more gradual approach to policy after the bigger cuts in October and December.

With inflation hovering around 2% and the economy still adjusting, the Bank decided to reduce the rate further. The hope is that these lower rates will encourage household spending and gradually strengthen the economy. The Bank has made it clear that while things are looking good now, they’ll be keeping a close eye on the situation—especially with the looming threat of tariffs from the U.S.

Economists were pretty much expecting this 25-basis point cut, though things have been a bit uncertain lately, especially with the possible tariffs set to hit as early as February 1st. If the tariffs go through, it could shake things up for the Canadian economy, which is why some experts say the Bank was playing it safe with this decision.

Of course, the full impact of any U.S. tariffs is still up in the air. Some think the Bank may need to raise rates in the future if inflation picks up, while others believe the cuts could continue if the economy stays on track.

The next rate decision will happen on March 12, 2025, and we’ll be keeping a close eye on what happens next.

By the end of November 2024, a total of 22,563 housing units were completed, including 9,340 purpose-built rental units. This increase in supply has helped ease the pressure on both resale prices and rental rates. New home construction is on track to hit record levels in 2024, with 22,652 starts so far—already surpassing the entire 2023 total of 19,579. There’s been an uptick across all property types, with nearly half of the new builds being apartment-style units, including almost 5,000 purpose-built rentals. As these new units are completed, buyers will have more options, which should continue to ease pressure on resale home prices throughout 2025.

Looking ahead, experts predict that new home starts will slow down in 2025 after the record-breaking pace of 2024, as the market moves toward a more balanced state. However, demand is expected to remain strong, supported by lower interest rates that are favorable for both move-up buyers and first-time buyers. The increase in new home supply could also impact certain areas of the resale market.

Looking ahead to 2025, employment in Calgary is expected to grow by about 2%, with gains in sectors like construction, retail, healthcare, and education. At the same time, a slowdown in migration is likely to ease the growth of the labor force, helping to reduce unemployment rates by the end of 2025.

In 2024, Calgary's unemployment rate rose due to high levels of migration, which led to a quicker expansion of the labor force than job growth could keep up with. However, this increase in unemployment mostly affected younger people and newcomers, so it hasn’t had much of an impact on demand for housing.

Calgary’s job market in 2024 outperformed expectations, with strong growth in manufacturing, followed by accommodation and food services, transportation and warehousing, and information, culture, and recreation sectors. As migration slows down in 2025, the city’s employment levels are expected to continue on an upward trend, which should help stabilize the job market and improve employment rates.

Alberta’s energy sector is flourishing, benefiting from rising energy prices, favorable exchange rates, and increased production following the completion of the TMX pipeline. Additionally, the province has experienced significant population growth, fueled by both international and interprovincial migration, which has supported the housing and construction sectors, despite the challenges posed by higher interest rates. As a result, many analysts are forecasting that Alberta will lead all provinces in economic growth in 2024.

Looking towards 2025, concerns about potential U.S. tariffs have slightly dampened growth expectations. However, most projections still indicate that Alberta’s economy will continue to expand. In addition to the energy sector, growth is expected to come from investments in alternative energy, carbon capture and storage, food manufacturing, and artificial intelligence data centers. These sectors, combined with anticipated rate cuts by the Bank of Canada, are expected to drive economic activity. ATB Economics suggests that if Alberta avoids U.S. tariffs, the province’s economic growth could be nearly double current predictions, likely resulting in stronger interprovincial migration and a boost in housing activity

In 2023, Canada saw a significant boost in luxury real estate demand, driven by the arrival of nearly 472,000 new permanent residents, with another 485,000 expected in 2024. This growth was further supported by the Bank of Canada’s interest rate cuts starting in June, which also helped shift some buyers from traditional markets into entry-level luxury properties.

By October 2024, home sales across Canada’s MLS systems had increased 7.7% month-over-month—the highest since April 2022—and continued to rise into November. A 50-basis point rate cut in December is expected to keep momentum going into 2025.

According to a recent report, both conventional and luxury markets showed strong resilience in 2024, with sales activity picking up in the final quarter, suggesting continued growth in the months ahead.

Greater Toronto Area

Toronto led the luxury market recovery, with sales over $4 million rising 21% year-over-year in 2024. Single-family homes made up 91% of these sales, and ultra-luxury sales over $10 million grew by 20%.

Calgary

Calgary saw the fastest growth, with sales over $1 million up 42%, and those over $4 million doubling from the previous year. The growth was driven by a population surge and strong demand for both single-family and attached homes.

Montreal

Montreal's luxury market showed resilience, with $4 million+ sales up 16% and $1 million+ sales up 38%. Condominiums were particularly strong, seeing a 53% increase in sales.

Vancouver

Vancouver’s luxury market struggled in 2024, with sales over $4 million down 11% and ultra-luxury sales over $10 million dropping 29%. However, $4 million+ condominiums saw a 26% rise, suggesting potential growth in this segment.

Summary

The report highlighted Toronto and Montreal’s recovery as a model for other markets, driven by realistic pricing and lower interest rates. Calgary continues to lead in luxury sales, creating high demand and price pressure. In contrast, Vancouver’s market remains slow due to a disconnect between seller expectations and buyer demands. However, luxury condominiums in Toronto and Vancouver present strong investment opportunities, with lower prices and less competition setting the stage for future growth.

In a surprising shift, more Canadian seniors now have mortgages than young adults under 35. According to the Bank of Canada's 2024 mortgage data, nearly half (49%) of mortgage debt is held by those aged 45 to 64, while another 26% is owed by people between 35 and 44. Together, these two age groups account for 75% of the country's mortgage debt.

Interestingly, seniors aged 65 and older hold 14% of mortgages, slightly outpacing the 12% held by those under 35. This is a big change from previous generations, who were more likely to own homes before 35.

Looking at mortgage originations (when the loan was first taken), 52% of current mortgages were taken out by borrowers under 45, but only 23% were taken out by those under 35. Today’s young adults are much less likely to own a home at the same age compared to previous generations.

Seniors aren’t just downsizing in retirement—they’re carrying mortgages longer. Despite representing 14% of mortgage holders, only 7% of loans were originated at age 65 or older. More seniors are simply holding onto their mortgages as they age, with reverse mortgages becoming an increasingly popular option

In 2023, Toronto continued to lead the way in housing searches, with one-bedroom rents averaging $2,374 and home prices at $1,061,700. Vancouver followed closely behind, boasting the highest rents in Canada at $2,534 and even higher home prices, averaging $1,172,100. For those seeking more affordable options but still close to Toronto’s vibrant urban core, Mississauga offered a more budget-friendly choice with one-bedroom rents at $2,279.

Ontario’s Housing Landscape

Ontario dominates the real estate market, driven by its population density and abundant economic opportunities. Cities like Mississauga, Hamilton, Ottawa, and Oshawa have followed Toronto's lead, offering a mix of affordability and convenience:

• Hamilton, located just an hour west of Toronto, is particularly attractive to first-time buyers, thanks to its relatively affordable home prices and rents.

• Oshawa, known for budget-friendly condo townhouses, is perfect for those seeking affordable options with easy access to Toronto.

• Ottawa, Canada’s capital, offers a stable job market, high quality of life, and more affordable housing compared to Toronto. Plus, its proximity to Quebec’s scenic lakes makes it an ideal spot for those looking for budget-friendly cottage properties.

Alberta: A More Affordable Alternative

With living costs soaring, Alberta’s cities offer a practical alternative for buyers and renters looking for affordability without sacrificing urban amenities:

• Calgary offers a blend of city life and outdoor adventures, with one-bedroom rents averaging $1,634 and homes priced at $575,600. Its proximity to the Rocky Mountains and vibrant cultural scene make it a popular choice for families and young professionals.

• Edmonton stands out for its affordability, with one-bedroom rents averaging $1,355 and home prices around $395,400, making it one of the most cost-effective cities in Canada. With a strong economy and lower living costs, Edmonton continues to attract both investors and first-time buyers.

Who’s Driving the Market?

Two key demographics are fueling today’s housing market. Young professionals and first-time buyers aged 25-34 are actively seeking affordability and urban convenience. At the same time, buyers aged 45-64 are looking to downsize or assist their children with housing costs, creating an evolving demand across various cities.

The luxury housing market in Toronto experienced a significant boost in the last quarter of 2024, with sales of homes priced over $3 million increasing by more than 40% compared to the same period in 2023.

More than 360 freehold homes and condos were sold in Q4, a notable rise from 259 sales in the same timeframe the previous year. Recent interest rate cuts by the Bank of Canada helped stimulate demand, sparking interest in high-end properties both within the city and its surrounding suburbs.

Experts had anticipated a surge in luxury home sales, as a combination of economic factors—such as lower rates, pent-up demand, and shifting buyer sentiment—came together in the final quarter.

Record-Setting Sales in Toronto’s Luxury Market

Toronto accounted for more than half (53%) of these luxury home sales, with the city’s softened property values creating new opportunities in the $5 million to $7.5 million range. Homes priced above $5 million saw the most significant increase, with sales jumping nearly 59% year-over-year. The $7.5 million-plus segment also posted gains, with sales rising 41%, while properties priced over $10 million remained stable compared to the previous year.

Notably, nearly half of the sales in the $5 million-plus category occurred in the suburbs, highlighting a growing preference for high-end homes outside the city core.

What’s Driving the Growth?

Several key factors have contributed to this surge in the luxury market:

• Lower interest rates: The Bank of Canada’s 100-basis-point rate cut in 2024 helped fuel buyer enthusiasm.

• Stock market gains: Strong performances in major indexes like the NASDAQ, S&P 500, and TSX have bolstered confidence among high-net-worth buyers.

• Easing inflation: As inflation pressures eased, many affluent buyers felt more secure in converting their financial gains into real estate investments.

Looking Ahead to 2025

Although inventory remains tight, there’s growing optimism for continued growth in Toronto’s luxury market. Increased buyer confidence, coupled with a strong equity market, suggests that demand will remain high, particularly for single-family homes. Additionally, the ongoing transfer of wealth across generations and rising interest from international buyers—especially affluent Chinese immigrants—are expected to continue supporting the high-end real estate sector.

The evolving political landscape in both Canada and the U.S. could also have an impact on the market. Despite this, many remain optimistic, believing that with the strong fundamentals in place, Toronto’s luxury market is positioned not only to maintain but to surpass the impressive levels seen in 2024.

Calgary's real estate market closed 2024 with strong sales, totaling 1,322 in December—a slight dip of 3% from last year but nearly 20% above the long-term average. While overall sales were close to last year's levels, growth in higher-priced homes offset slower sales in lower price ranges due to limited supply.

“Population growth has kept sales above long-term trends, but if there had been more options—especially in the affordable range—sales could have been even higher,” said Ann-Marie Lurie, Chief Economist at CREB®. “However, we saw supply improve in the second half of the year, especially for higher-priced homes.”

By December, inventory had risen to 2,989 units, a notable improvement over last year level. More housing options helped ease price pressures, with benchmark prices rising by 7% overall in 2024. As we head into 2025, supply will continue to be a key factor in shaping the market.

Key Property Trends:

·       Detached Homes: Sales rose for homes priced over $600,000, aided by easing lending rates. Detached home prices increased by nearly 11%, with the strongest growth in the North East and East districts.

·       Semi-Detached Homes: Tight supply in detached homes drove buyers toward semi-detached properties, leading to a 5% sales increase. Prices rose by almost 11%, particularly in the North East and East.

·       Row Homes: Row homes saw a 2% increase in sales, making it the second-highest total on record. Prices rose by 14%, with the North East and East districts seeing over 20% growth.

·       Apartment Condominiums: After a strong first half, apartment sales slowed by 4%, but still reached the second-highest total ever. Prices rose by 15%, with the North East, East, and South districts seeing the biggest gains.

Regional Highlights:

·       Airdrie: Sales rose by 4%, thanks to more listings, and prices increased by 8%, especially for higher-density homes.

·       Cochrane: The market favored sellers for most of the year, but by the last quarter, more listings helped balance conditions. Prices rose by 9%, averaging $565,808.

·       Okotoks: With sales up 8% and new listings increasing by 16%, Okotoks continued to favor sellers. Prices rose by nearly 8%, with row and semi-detached homes seeing larger increases.

Looking Ahead to 2025

As we move into 2025, supply will remain critical in shaping Calgary’s housing market. CREB®’s upcoming forecast report will provide further insights into what to expect in the year ahead.