What a surging national deficit could mean for Bank of Canada rate cuts

The Bank of Canada was widely expected to continue bringing its benchmark rate lower in the months ahead, although by how much remained anyone’s guess.

Still, plenty of factors could complicate the central bank’s plans on rates—not least the prospect of a dramatically higher national deficit, which has raised fears of mounting investor unease and upward pressure on inflation.

National Bank of Canada’s chief economist, Stefane Marion, projected that Ottawa’s fiscal shortfall would reach $100 billion this fiscal year, more than double the $42 billion the government forecast in December.

Speaking at Bloomberg’s Canadian Finance Conference, Marion called the upcoming fiscal update “the most consequential budget in a generation” and flagged a decade of “suboptimal” economic policy as a key backdrop.

“We do have some fiscal room when you compare Canada to the rest of the world,” Marion said. “We should not waste it.”

He pointed to Canada’s relatively strong position among G7 countries, but warned that the government’s ambitious spending plans, spanning infrastructure, defence, and housing, could test the country’s fiscal resilience.

Deficit pressures could limit rate cuts

A surging deficit—when the federal government spends significantly more than it collects in revenue—could have significant implications for the Bank of Canada’s rate trajectory. 

A larger deficit typically means the government must borrow more by issuing bonds. If investors become concerned about the size or sustainability of Canada’s deficit, they may demand higher yields to compensate for perceived risk. This pushes up government bond yields, which serve as a benchmark for other borrowing costs across the economy, including mortgages.

Inflation and central bank caution

Moreover, heavy government spending can stimulate demand in the economy. If the economy is already running near capacity, this extra demand can fuel inflation.

The Bank of Canada’s primary mandate is to keep inflation in check. If inflation risks rise due to deficit spending, the central bank may be forced to delay or limit rate cuts, even if economic growth is sluggish.

While Canada’s fiscal position remains stronger than many G7 peers, a rapid increase in the deficit reduces the central bank’s flexibility.

If fiscal policy is highly stimulative, the Bank of Canada may worry that cutting rates too aggressively could overheat the economy or undermine the currency.

A surging national deficit, especially one that pushes toward three per cent of GDP, could mean the Bank of Canada is more cautious about cutting rates.

Even if economic conditions would normally justify lower rates, concerns about inflation, investor sentiment, and higher government borrowing costs may force the central bank to pause or slow the pace of cuts.

For mortgage professionals, this means rate relief could be less predictable and more dependent on fiscal decisions coming out of Ottawa.

Investment, productivity, and the road ahead

Meanwhile, Marion and other economists have argued that targeted investment, particularly in infrastructure and energy, could help boost Canada’s lagging productivity. “We’ve been stranding these assets by not knowing whether or not we could exploit them down the road,” Marion said.

He also cited the country’s clean electricity sector as a major opportunity for foreign investment.

Still, the Bank of Canada’s next moves will likely hinge on the details of Ottawa’s budget. Marion predicted a quarter-point rate cut to 2.25% at the next meeting, but said policymakers would probably pause to assess the fiscal outlook. “It will be a stimulative budget,” Marion said.

CMP

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Canada's job growth in September puts Bank of Canada rate cut in doubt

Canada’s labour market surprised in September, adding 60,400 jobs while the jobless rate stayed at 7.1%, Statistics Canada reported.

These strong gains, led by full-time work and a manufacturing rebound, have cast doubt on a Bank of Canada rate cut and forced mortgage professionals to rethink their outlook.

Economists had widely expected a far more modest jobs gain, with the median forecast at just 5,000. Public sector hiring, along with increases in manufacturing, agriculture, and healthcare, drove the growth. The employment rate edged up to 60.6%, while the participation rate rose to 65.2%.

Traders quickly dialed back bets on an imminent BoC rate cut. The odds of a move at the October 29 meeting dropped from 50% to about 25%, according to market data.

“Today’s data still suggests that a large degree of slack remains within the labour market, which we think justifies a further interest rate cut from the Bank of Canada, although today’s strength in employment could delay the timing of that move,” Andrew Grantham, CIBC economist, said in a note.

Manufacturing rebounds, but headwinds persist

Manufacturing employment, battered earlier this year by trade tensions, posted its first increase since January, adding 28,000 jobs, mostly in Ontario and Alberta. Still, the sector remains down 58,000 jobs since January, highlighting ongoing volatility.

Gains were concentrated among core-aged workers, with youth employment flat and the unemployment rate for that cohort climbing to 14.7%, its highest since September 2010 outside the pandemic. Alberta led provincial gains, offsetting summer losses, while Ontario’s jobless rate ticked up to 7.9%.

Mortgage market implications

For mortgage professionals, this jobs report adds uncertainty to the outlook for rates and housing demand.

Despite September’s strong numbers, Canada lost 45,900 jobs over the past three months, and employment is up just 22,000 positions, or 0.1% since January.

Wages grew 3.3% year-over-year, but total hours worked slipped 0.2% in September.

The Bank of Canada’s next decision depends on whether this job growth lasts. Housing and other rate-sensitive sectors could see higher rates for longer if the labour market stays strong, but ongoing weakness might still push the central bank to cut.

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

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Thirty-year ams boost first-time buyers, but pitfalls remain

It was billed by the Trudeau government as part of the “boldest mortgage reforms in decades,” an effort to open access to homeownership for scores of younger Canadians locked out of the market.

Nearly a year after being introduced, that measure – access to 30-year amortizations for first-time homebuyers – haven’t exactly transformed the mortgage landscape.

But it’s been given a cautious thumbs-up by brokers during that period for improving buyers’ prospects of qualifying for a mortgage, even if it ultimately stretches out the mortgage and means they’re paying back over a longer period.

Jason Zuckerman, a Montreal-based mortgage broker with Groupe Orbis, spelled out the dilemma facing many first-time buyers as they weigh up taking out a 30-year term.

“On one hand, it’s not a good thing because it pushes people to take on more debt,” he told Canadian Mortgage Professional, “but on the flip side, it’s a good thing in the sense that it helps increase their borrowing capacity.

“Before this new regulation, only people who could put down 20% could amortize their mortgage for up to 30 years. Now it evens things out more to help younger people buy their first home. And since salaries have not kept up with the price of homes, many young people feel priced out of the market.”

Gaining that access to homeownership puts younger people in a position to build equity for the future, even if it will ultimately take longer to build that equity because they’ll be paying more interest over the 30-year period.

That means they’ll be more reliant on the appreciation of their current property value if they want to purchase a more expensive home at a later stage – and while banks can offer prepayment options to help customers lower their amortization, not all borrowers take advantage of them.

A strong option – but not always the right one

For brokers, the answer to the question of whether a borrower should stretch into a 30-year amortization is a multi-layered one.

Zuckerman said much depends on each client’s long-term goals for their home and the mortgage strategy they’re comfortable with.

“When clients ask me ‘Should I take 25 or 30 years?’ I always tell them: ‘Is it your goal to pay down your home as quickly as possible, while having a higher monthly payment? Or is it your goal to forego paying down your mortgage quickly, for the benefit of having an extra few hundred dollars of breathing room at the end of the month?’” he said.

“Overall, it depends on the client’s personal situation. If it’s two young people, I’m usually encouraging them to do the 30-year amortization, just because you don’t want them to be stuck at the end of the month trying to make ends meet. And if they do have extra money at the end of the month, they can always prepay it to the bank to lower their mortgage balance/amortization.”

Plenty of work still needed to ease affordability challenges

That expanded amortization also made an immediate impact in Toronto, one of Canada’s priciest real estate markets.

At the end of last year, Toronto broker Matthew O’Neil told CMP the option had been a welcome change for borrowers.

“A 30-year amortization on a [$1.3 million] mortgage might drop your payment $400, $500, $600 a month,” he said. “It’s pretty significant, and then [buyers] are also getting out of a two-bed, two-bath condo, which would historically be $650 to $700 in condo fees.”

But improving access to homeownership for Canadians will take more than adjusted mortgage rules – and while the federal government under Prime Minister Carney has unveiled a slate of new housing proposals including plans to turbocharge the pace of home construction, it could prove easier said than done.

A recent Parliamentary Budget Office (PBO) report showed that the national gap between average house prices and what a typical household can afford narrowed between September 2023 and August 2025 – but big challenges persist in the priciest markets.

In Toronto, Vancouver, and Victoria, according to interim officer Jason Jacques, “households… are still stretching their finances to buy a home.”

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!

Who’s actually moving in Canada’s housing market?

Recent months have seen a mixed picture at best for Canada’s regional housing markets, with home prices sliding across many cities and sales remaining sluggish despite a mild uptick in some regions.

Still, that slight jump in activity begs the question of which buyer types are finding opportunity in the current housing market even as others wait out for even lower prices and rates down the line.

Kalson Jang (pictured top), a Toronto-based mortgage agent with Premiere Mortgage, told Canadian Mortgage Professional that while some buyer cohorts – notably, investors – were still sitting on the sidelines, others including first-time homebuyers and upsizers were suddenly enjoying a better outlook and more choice.

“Maybe they started off as a couple in a condo and now they have one child on the way, or maybe even a baby who is becoming a toddler,” he said. “Maybe they have another baby on the way, and now have a family of four.

“They definitely have to move out of the condo so it gives them a nice opportunity, even though the condo market’s down. They’re still able to buy a house.”

Buyers grapple with changing housing outlook

Plunging prices and lack of demand in Toronto’s condo market mean few sellers are likely to make a profit on those property types if they sell.

But buyers who are in a position to purchase a larger property because of price drops across the market are also sometimes comforted by the fact that they’re paying less for their new home, Jang said, than they might have earlier in the year.

First-time buyers, meanwhile, have benefited from lower prices in the condo market – and lower interest rates after the recent September cut by the Bank of Canada – to make their move.

Much has been made of the so-called “dog crate” condos sitting unsold in the city, with those properties largely built for rental purposes before demand nosedived. Few buyers are willing to take a gamble on those properties.

But other, larger condo types are attractive to buyers in the city, Jang said, particularly those who are purchasing for the first time.

“Even if they’re making pretty good money, they weren’t able to actually buy anything of decent value when condo prices were so high before,” he said. “Now they’re able to buy condos, let’s just say for $500,000. Before, that didn’t get you much. But now, that gets you something quite nice.”

Toronto market far from a big rebound

That’s not to say things are looking up if you’re a seller in Toronto’s housing market. Condo prices are expected to continue slipping in the months ahead, particularly with a flood of new inventory still scheduled to hit the market.

And some analysts believe borrowing conditions still need to improve before more buyers will be coaxed back into the market.

“Two more 25-basis-point interest rate cuts by the Bank of Canada would see monthly mortgage payments move more in line with homebuyers’ average incomes,” Toronto Regional Real Estate Board (TRREB) chief information officer Jason Mercer said in remarks accompanying the board’s latest release.

The good news is that those reductions appear to be on the way, although it’s not clear whether they’ll arrive in the central bank’s last two decisions of 2025.

For now, Jang said buyers who need to move – for work, family, or other reasons – are finding a market that’s much better suited to their goals than before.

“Buyers need to remember to take a longer-term approach. You’re not buying a house like it’s a stock – you’re buying a home to live in and a home to build your life,” he said.

 “So if you keep that long-term perspective, you’re going to gain in the long term anyway. You just need to make sure you buy something that fits your family’s needs.”

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!

Toronto condo prices slumped again in September

Toronto’s condo market continued its downward slide in September, with average prices falling to levels not seen in years—even as sales activity picked up across the city.

The average price for a Toronto condo apartment dropped to $655,231 in September, down 4.3% from the same month last year. Within the city of Toronto proper (the 416 area), the average was $681,115, a 3.8% year-over-year decline.

The surrounding 905 region saw an even steeper drop of 5.4%, with average prices at $606,275. These figures mark the lowest point for condo prices in the region in at least four years, according to the latest data from the Toronto Regional Real Estate Board (TRREB).

Despite the price drop, condo sales in Toronto rose 7.2% year-over-year, with 1,437 units changing hands in September.

Sales up, but recovery remains distant

While overall home sales in the Greater Toronto Area rose 8.5% year-over-year, the average selling price for all home types fell 4.7% to $1,059,377. New listings climbed 4% to 19,260, but active listings remain high, keeping pressure on prices. The composite benchmark price for the region was down 5.5% from last year.

A Canada Mortgage and Housing Corporation report found that Toronto’s condo prices are declining at rates similar to the early ‘90s, but expects prices to rebound within a few quarters, rather than the seven-year slump seen three decades ago.

Still, Anne-Elise Cugliari Allegritti, Royal LePage’s vice president of research and communications, cautioned buyers not to assume these lower prices will last. Even if waiting makes sense now, she said, the window of opportunity may close sooner than expected.

“There could be another year or so of this sort of sweet spot of opportunity for anyone who’s looking to get into a condo in Toronto,” she told Canadian Mortgage Professional.

“But I can’t imagine it will last forever because we’ll get to a point where there’s just no new supply coming on the market."

First-time buyers face tough choices

Even with falling prices, many first-time buyers remain priced out of detached homes, which averaged $1.36 million in September.

“It’s just more likely that a first-time buyer can get into a condo than anything else,” Cugliari Allegritti said. “So in other words, they don’t have much other option except for condos.”

Some buyers are holding off, hoping for better deals. With possible Bank of Canada rate cuts ahead, those not in a hurry are saving more and carefully planning to buy when the time feels right.

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. P

lease feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!