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Canadian real estate market forecasts and trends for the next five years

Based on financial factors and buyer behavior, here’s how we can expect the real estate landscape to change over the years ahead
Experts rely on certain market indicators to get a sense of the future. Credit: andresr/iStock.

Real estate trends are slippery and hard to pin down. But buyers, sellers, mortgage brokers, and real estate agents appreciate some kind of framework that can provide insights into what to expect so that they can, hopefully, make profitable decisions. 

Although it is next to impossible to predict with certainty what will happen between now and 2028, we can look at financial factors and buyer behavior to estimate how the real estate landscape will change over the next five years.

History shows how quickly things change in real estate

One only needs to look at the last few years to see how the market can react to unexpected events. For example, few people saw the COVID-19 pandemic coming, let alone predict that Canadians would spend months at home during lockdown. Interestingly, this led to many people deciding to move, but prices spiked throughout 2021 as there were too few houses for all the buyers. 

Since the last three years were impossible to predict, it is difficult to forecast with any certainty what the next five years might bring. Experts do rely on certain market indicators to get a sense of the future.

Interest rates

The Bank of Canada is a major consideration when it comes to real estate forecasting. More specifically, the changing interest rates. Near the start of 2022, it was close to a record low to encourage post-pandemic loans, but since then, they’ve increased exponentially from 0.25% in January 2022 to a two-decade record high of 4.75%. Although the hike has slowed down, it’s still climbing, and economists are unclear about when it will end.

Interestingly, this didn’t slow buyers down. Analysts noticed that buyers adjusted how much they borrowed, but many ultimately decided to enter the market and not wait until the interest rates came down again.

But how will interest rates affect the market over the next five years? Some experts feel that there could be significant negative ripples. Over time, the interest rate effect will permeate the economy and restrict the growth of the housing market by making it harder for people to purchase property, raising costs for developers, and higher mortgage rates for existing homeowners can hamper attempts to renew now or over the next few years.

Available inventory

Another major factor that affects forecasts is the ratio between potential home buyers and available properties. Recently, the trend we are seeing is a worrying lack of available inventory. This is more obvious in places where the population is already high, like Toronto and Vancouver. Indeed, Canada’s growing population also drives the tight market and affordability crisis.

Besides record-high prices, bureaucracy can also have a negative impact on the housing market’s future. Red tape consistently delays the development of new buildings by making it harder to get plans and permits approved. As a result, developers simply cannot keep pace with the demand for new homes, and this also impacts pricing.

Buyer behavior

The fears, perceptions, and wants of future homeowners can also contribute to trends. RE/MAX Canada recently held a Leger survey, and what Canadians had to say was interesting: 

When asked what their greatest housing concerns were over the next five years, participants named taxation (50 percent), rising interest rates (46 percent), and a potential economic recession (42 percent). 

Also, considering the next five years, most Canadians would choose a suburban community (37 percent); the next largest group wants an urban environment (30 percent), while others prefer to move to a rural area (27 percent).

The reports also asked how participants viewed real estate as a long-term investment. The majority (61 percent) saw no real changes over the next five years and said that buying property was the best investment. Truth be told, certain things could cause concerns during that time for new buyers, including increasing property-related taxes (64 percent), rising interest rates (58 percent), and the possibility of a capital gains tax (55 percent).

The best opportunities might be off the beaten path

Toronto, Vancouver, and other big cities might be the top choice of destinations for people looking to move, but experts advise that potential homeowners might get a better price by switching their focus to smaller cities and provinces with lower populations.

Expanding one’s search during this climate can make owning a property a reality much faster, especially for Canadians looking to enter the market for the first time.