Canada’s real estate market is undergoing significant changes as economic shifts, interest rate cuts, and policy reforms impact buyers, sellers, and investors. With home sales in Toronto dropping, interest rates declining faster than expected, and the Canadian dollar facing challenges, the housing landscape is evolving.

As the government reassesses immigration targets and economists push for Employment Insurance (EI) reforms, the ripple effects on consumer spending and market confidence are becoming evident. Will lower borrowing costs be enough to revive demand, or are we entering a prolonged buyer’s market?

This blog explores the latest trends, expert insights, and policy changes shaping Canada’s housing sector in 2025.

Toronto & Canadian Real Estate: A Buyer’s Market?

Recent data indicates a significant cooling in Canada’s housing sector. In February 2025, home sales in the Greater Toronto Area (GTA) decreased by 28% compared to the previous year, influenced by economic concerns related to trade uncertainties. Year-over-year, sales fell by 27.4% compared to February 2024. New listings in the MLS® System amounted to 12,066, up by 5.4% year-over-year. 

February sales were down month-over-month compared to January 2025. The MLS® Home Price Index Composite benchmark was down by 1.8% year-over-year in February 2025. The average selling price was $1,084,547, down by 2.2% compared to February 2024. 

These trends suggest a transition into a buyer’s market, offering increased negotiating power for purchasers.

Falling Interest Rates: A Game Changer?

While falling interest rates in Canada, such as the Bank of Canada’s recent cuts, may not be a total game changer, they can positively impact affordability, encouraging spending, investment, and potentially boosting the real estate market. Lower borrowing costs make financing more accessible for individuals and businesses, reducing rates on home equity lines of credit (HELOCs) and mortgage refinancing. This, in turn, can stimulate consumer and business spending as loans become more affordable.

In the housing market, while the rate cuts haven’t triggered a frenzy, they could drive increased demand from buyers who were previously hesitant. However, lower rates can also contribute to inflationary pressures, which may require future adjustments by the Bank of Canada. Since June 2024, the Bank of Canada has progressively reduced its policy rate from 5% to 3% by January 2025, with the latest 25-basis-point cut marking the end of quantitative tightening.

In real estate, lower interest rates enhance affordability by reducing mortgage payments, making homeownership more accessible and potentially driving market activity. However, experts maintain cautious optimism, suggesting that while increased activity is expected, it is unlikely to reach the extremes seen during the pandemic.

Canadian Dollar Struggles: Real Estate & Investment Implications

The Canadian dollar fell 0.3% against the greenback, touching a five-day low at 1.4440, amid declining US oil prices (-1.1%) and easing bond yields. Economic pressures continue to weigh on the currency, influencing both real estate and investment dynamics. A weaker Canadian dollar can make real estate more attractive to foreign investors, as their purchasing power increases, potentially driving demand. However, it also leads to higher import costs, contributing to inflation and reducing consumer purchasing power. These factors create a mixed economic outlook, with both opportunities and challenges for investors and consumers alike.

Auto Industry Reprieve: Short-Term Relief, Long-Term Effects?

Canada’s auto industry recently received a short-term boost, offering stability to workers and businesses. While this relief is positive, its long-term effects on the broader economy and consumer confidence remain uncertain.

Conclusion: Will the Market Rebound?

While falling interest rates create a more favorable borrowing environment, other economic factors remain in flux. The real estate market may not see an immediate resurgence, but conditions are shifting in a way that could benefit buyers in the short term. If demand rebounds and inventory levels stabilize, a more balanced market could emerge in the coming months. For homebuyers and investors, staying informed about interest rate changes, economic policies, and market trends will be crucial in navigating this evolving landscape.

Check out our latest Make Money Count video on how U.S. tariffs are affecting Canada’s economy and housing market!