Ontario Real Estate Market Forecast 2025: A Turning Point or Trouble Ahead?

The Ontario real estate market is heading into 2025 with a mix of optimism and uncertainty. While lower interest rates are providing some relief for buyers and homeowners, economic challenges such as rising unemployment, trade tensions, and mortgage delinquencies are shaping a market that is more balanced than in recent years. Will 2025 mark a period of stability, or is another downturn on the horizon? Several key factors will shape the year ahead.

Economic Factors Shaping the Housing Market

GDP Growth: A Recovery With Challenges

Canada ended 2024 on a strong note, with Q4 GDP growth reaching 2.6%—the fastest pace in nearly two years. Household spending rose 1.4%, fueled by a rebound in retail activity and increased residential construction. Looking ahead, the Bank of Canada projects a 1.8% growth rate for 2025, signaling cautious optimism(Source: Bank of Canada). However, risks remain. Trade tensions, currency fluctuations, and labor market shifts could slow economic momentum. While the economy is recovering, its impact on the housing sector will depend on how these challenges unfold.

Inflation: A Balancing Act

Inflation has eased considerably from its 2022 highs, settling at 1.9% in January 2025 (Source: Bank of Canada). While lower food prices have provided relief, rising fuel costs continue to strain household budgets. This mixed economic picture offers some benefits for homeowners but keeps affordability concerns at the forefront. The Bank of Canada remains measured in its approach to interest rate cuts, aiming to stimulate growth without reigniting inflation.

Interest Rates: The Key to Market Activity

The Bank of Canada has reduced its policy rate to 3% (down from 5% in 2024), leading to lower mortgage rates. While variable-rate mortgages have become more affordable, fixed rates remain influenced by bond yields and broader economic conditions. Housing inventory has surged 22.7% year-over-year offering buyers more options and slightly easing affordability pressures. However, high household debt and economic uncertainty continue to make many buyers hesitant (Source: Canadian Mortgage Trends, CREA). With more listings and slower price growth, the market appears to be shifting in favour of buyers.

Unemployment: A Growing Concern

Ontario’s unemployment rate climbed to 7.6% in January 2025, up from 6.1% a year earlier. Job losses in the construction and hospitality sectors contrast with ongoing growth in tech and finance (Source: Statistics Canada). Rising unemployment could weigh on housing demand, particularly in high-cost urban centers like Toronto and Windsor. If job losses persist, fewer households will be able to enter the market, potentially influencing both sales volume and pricing trends.

Housing Market Indicators: Where Are We Headed?

Home Sales and Price Trends

Ontario’s housing market showed mixed signals in early 2025. New listings surged 25.7% year-over-year, leading to the highest active listings in a decade. With five months of inventory, the market is more balanced, favouring buyers after years of intense seller-driven conditions. While prices have remained stable, condo prices in Toronto have dipped by 3.4%, reflecting shifting demand (Source: TREBB). More inventory means slower price growth, a welcome relief for buyers but a concern for sellers hoping for quick sales.

Mortgage Delinquencies on the Rise

A concerning trend for 2025 is the sharp rise in mortgage delinquencies. In late 2024, over 11,000 Ontario homeowners missed payments, nearly three times pre-pandemic levels. The 90+ day delinquency rate has surged by 90%, now at 0.22%—significantly higher than British Columbia (37.7% increase) and Alberta (-3.6%) (Source: Equifax). This strain is largely driven by higher mortgage balances, with Ontario's average mortgage at $434,744, compared to the national average of $344,928 (Source: Equifax). Additionally, many homeowners are renewing loans at double or even triple their original rates, creating further financial pressure. Toronto's delinquency rate has reached a nine-year high, underscoring persistent affordability challenges despite recent rate cuts (Source: CBC News).

Impact of Government Policies and Immigration

Government policies and immigration patterns are playing a crucial role in shaping the real estate market in 2025. The federal government has reduced immigration targets from 485,000 in 2024 to 395,000 in 2025, aiming to ease pressure on housing demand (Source: Reuters). While this may help cool the market, it also risks exacerbating labor shortages in construction, potentially slowing the pace of new housing development.

At the provincial level, tax cuts and mortgage rule adjustments are designed to support homebuyers. However, with record-high inventory and shifting market conditions, the market is more likely to stabilize rather than experience rapid price growth.

What’s Next for Ontario’s Housing Market?

The Ontario housing market in 2025 is defined by a balancing act between lower interest rates, rising unemployment, and a shift towards a buyer’s market. While affordability is improving in some areas due to increased inventory, the rise in mortgage delinquencies and economic uncertainties could weigh on demand.

Potential Scenarios for 2025:

1. A Buyer’s Market Emerges – With inventory rising and mortgage rates stabilizing, buyers have more choices and negotiating power. Prices may stay flat or dip in certain segments, particularly condos.

   
   

2. Mortgage Defaults Increase – If unemployment continues to rise, more homeowners may struggle with payments, leading to forced sales and potential price corrections.

   
   

3. Economic Uncertainty Delays Purchases – With global trade tensions and job market fluctuations, some buyers may adopt a wait-and-see approach, slowing market activity.

While 2025 won’t see the extreme price spikes of previous years, it will be a year of transition. Buyers, sellers, and investors should stay informed and adapt to the evolving market conditions.