From the "renewal cliff" fears of January to the aggressive rate cuts of the Fall, 2025 was a defining year for Canadian real estate. We officially transitioned from the "higher for longer" era into an easing cycle, bringing much-needed relief to borrowers and energy back to the housing market.

Trend 1: The Great Rate Slide

The headline story of 2025 was the Bank of Canada’s rapid normalization of monetary policy. After holding steady in Q1, the central bank pivoted in June.

  • Prime Rate: Dropped by 1.0% from January to December.
  • Fixed Rates: The 5-year fixed average moved from ~4.80% down to just under 4.00%.
  • Impact: Variable rate holders finally saw their payments decrease or their amortization periods correct.

Read More: Bank of Canada Cuts Rates Again

Trend 2: Buying Power Was Restored

For prospective buyers, the most important metric of 2025 wasn't just the interest rate, but the "Stress Test" rate. As contract rates fell, the qualifying rate dropped alongside them.

For a household earning $100,000, purchasing power increased significantly by year-end compared to January, without any change in income. This breathed new life into the First Time Homebuyer segment.

Trend 3: The "Wait and See" Approach Ended

For 18 months, buyers sat on the sidelines waiting for a clear signal. That signal arrived in Q3.

  • Sales volume increased ~18% year-over-year.
  • Inventory levels remained balanced, keeping price growth moderate.
  • Bidding wars began to return in major urban centers by Q4.

Trend 4: The 2026 Outlook

Looking ahead, the forecast is for "Stability." Many believe the Bank of Canada will be holding rates for some time. This could drive some more confidence in the market as clients don’t just sit back and wait for rates to drop. If this happens, there are some in the market that believe this could lead to prices increasing in the back half of 2026. On our end, we still see a strong buying opportunity in many cities, as there is less competition and prices are down upwards of 20% in some major cities from their height in 2022.

Key takeaway

2025 was the turning point where affordability began to improve. If you have been waiting for the bottom of the market, the data suggests we have passed it, making the upcoming Spring market a critical window for action.

FAQs

Will rates keep dropping in 2026?

Maybe. Many economists think that 2026 could be a year where the Bank of Canada holds rates for potentially the whole year. Now, anything could happen before then as the economy is quite volatile right now. The key will be to track bond yields and inflation.

Is now a good time to buy?

With rates trending down and prices down upwards of 20% from 3-4 years ago, buying now allows you to lock in today's price before the Spring competition heats up.

I renewed early in 2025 at a higher rate. Can I break it?

It depends on your penalty calculation. With rates dropping significantly, it is worth a "break analysis" to see if the monthly savings justify the penalty cost.

What is happening with the Stress Test?

The drop in interest rates this year means the qualifying rate has dropped significantly too. Practically, this means you can qualify for a larger mortgage amount today than you could in January.