As we enter 2025, Alberta’s mortgage landscape is poised for significant changes influenced by national economic policies and local market dynamics. Understanding these trends is crucial for prospective homebuyers and investors aiming to make informed decisions.
1. Declining Mortgage Interest Rates
The Bank of Canada (BoC) has been progressively reducing its policy rate to stimulate economic growth and achieve its 2% inflation target. As of December 2024, the BoC’s policy rate stands at 3.75%, with projections indicating further reductions throughout 2025. Some forecasts suggest that the policy rate could approach the lower end of the BoC’s neutral rate estimate range of 2.25% to 3.25% by the end of 2025.
This downward trend is expected to lead to more favorable mortgage rates for borrowers. Fixed mortgage rates, which had previously peaked during the pandemic, are anticipated to decline by approximately half a percentage point by the end of 2025, with optimistic projections estimating rates around 4%.
2. Increased Housing Market Activity
Lower mortgage rates typically enhance affordability, enabling more individuals to enter the housing market. The Canadian Real Estate Association (CREA) forecasts a 6.6% increase in home sales for 2025, attributing this rise to the anticipated decrease in borrowing costs.
In Alberta, this trend may be further amplified by the province’s relatively affordable housing market compared to other regions, potentially attracting both first-time homebuyers and investors seeking opportunities in a recovering economy.
3. Shift in Mortgage Product Preferences
With the expected decline in interest rates, there may be a shift in borrower preferences from fixed-rate to variable-rate mortgages. Variable rates, which are directly influenced by the BoC’s policy rate, could become more attractive as they decrease more rapidly than fixed rates. Financial experts anticipate that variable-rate mortgages may fall below fixed rates in 2025, prompting borrowers to reconsider their mortgage choices.
4. Impact of Mortgage Renewals
A significant volume of mortgages in Canada is set to renew in 2025 and 2026. Borrowers who secured mortgages at historically low rates during the pandemic may face higher rates upon renewal, potentially increasing their monthly payments. This scenario underscores the importance of proactive financial planning and exploring options such as early renewal or refinancing to mitigate the impact of rate changes.
5. Economic and Policy Considerations
Alberta’s economy, heavily influenced by the energy sector, is subject to global market fluctuations. Additionally, federal and provincial housing policies, including changes to mortgage stress tests and first-time homebuyer incentives, will continue to play a role in shaping the mortgage landscape. Staying informed about these policies is essential for understanding their potential impact on mortgage accessibility and affordability.
Conclusion
The mortgage market in Alberta for 2025 is expected to be characterized by declining interest rates, increased housing market activity, and shifts in borrower preferences. Prospective homebuyers and current mortgage holders should remain vigilant, staying informed about market trends and policy changes to make strategic decisions that align with their financial goals. Policy, rates, and market data changes rapidly. Working with a mortgage expert can help simplify the process and make sure you’re setting yourself up for success. Reach out to Taylor at Hutch Mortgages today to get started.