A general sense of cautious optimism is felt among real estate market experts for the coming year, encouraged by the recent successive interest rate cuts by the US Federal Reserve.
Political uncertainties
Anthony Della Pelle, chairman of the board of Counselors of Real Estate (CRE), a global organization of real estate advisors, points out that the new Trump administration will likely announce new regulations on trade, corporate taxation, immigration and environmental conservation. These new regulations will have an impact on the American economy and therefore on the real estate market.
On the other hand, in more than 70 countries, including Canada, important elections will take place in 2025, and this could change a fragile geopolitical balance with the United States. The exchange rate between the Canadian dollar and the American dollar could thus undergo some shocks.
The high costs of real estate financing.
Even if rates decline, they remain elevated, and buyers will likely remain cautious in 2025. Property values will remain complex to estimate, and many market participants are predicting an increase in distressed asset sales in 2025. Indeed, more than $1.8 trillion in commercial real estate debt is set to mature before 2026. This could impact tenants and competition among landlords for all types of real estate.
Insurance
In 2023 alone, natural disasters caused over $380 billion in damage and losses, and only 31% of victims were insured. Insurance costs continue to rise due to climate events, inflation and rising property valuations. This trend will continue in 2025.
Please note: many owners try to estimate as precisely as possible the risks to which they are exposed and reduce their insurance coverage to reduce their bill.
A generally expensive market
Affordable real estate prices are becoming increasingly scarce, and there is a shortage of more than four million properties for sale on the American market. In 2025, the shortage of properties will persist. Furthermore, rents have increased by +45% in 15 years and represent more than 30% of income for more than half of tenants. To provide affordable housing solutions for all, we must hope to protect existing low rent housing, and an increase in new construction projects. New housing will have to integrate sustainable development elements to combat climate disasters – and reduce the insurance bill in the process.
In conclusion
Experts like Anthony Della Pelle are confident about 2025, as lower interest rates allow them to anticipate a soft landing for the U.S. economy and, overall, a positive impact on the real estate market and the bank loan market. Challenges such as housing shortages and insurance costs are well known.
Lower interest rates provide opportunities for first-time buyers to access home ownership, for more affordable new housing construction, and for increased investment in sustainable development and weather-resistant homes. For all your needs, consult the real estate professionals advertised in the pages of this newspaper.