Bank of Canada governor Tiff Macklem said Canadians could “breathe a sigh of relief” after last week’s decision to trim its benchmark rate by 50 basis points, but the mortgage industry isn’t gearing up for a big market upswing just yet.
That move brought the Bank’s overnight rate, which leads variable mortgage rates in Canada, down to 3.75%, its lowest level since the beginning of December 2022.
Still, today’s homebuying outlook is significantly different from that era, according to a British Columbia-based financial advisor, who told Canadian Mortgage Professional an immediate return to a higher pace of activity is unlikely.
Justin Prasad (pictured top), of BlueShore Financial, compared the current market unfavourably to the one that prevailed at the end of 2022 and the beginning of 2023. In that period, “houses were still selling,” he said. “People were coming in and I still remember the housing market was coming down – but it was still relatively hot.
“Rates are the same as they were then, but it’s a completely different environment. And I think the major difference is that where things were back in late 2022, early 2023, people still have access to savings. The labour market was not as hot as early 2022, but it was still pretty good. You could still find a job. Inflation was starting to really move, and people were starting to feel the effects – but it hadn’t really impacted people’s wallets yet.”
That’s a stark contrast to now, with high borrowing costs over the past 18 to 24 months having pummelled homebuying prospects and contributing to a challenging outlook for existing homeowners.
Rising unemployment, economic uncertainty clouding outlook
All that means a sluggish housing market that’s unlikely to shift before the end of the year. “Even with this [Bank of Canada] move, I don’t think that people are joyous about it,” Prasad said. “It’s moving in the right direction, but I don’t think people are ‘[breathing a] sigh of relief,’ because the economic picture is getting worse.”
The national unemployment rate is expected to tick upwards in the months ahead – with growing concern about job losses, Prasad said, likely to weigh down on housing market prospects.
The Bank has restored inflation to target without crashing the economy yet. However, “I think the risk now is, has it slowed down too fast?” Prasad said. “Are they behind the curve on cutting rates? And are we heading into recession? That trumps anything regarding rates – because who cares if you’re saving $150 on a variable-rate mortgage when you might lose your job.”
Prospects of a serious crash in the economy, though, remain distant, with S&P Global indicating that while the unemployment rate will tick close to 7% by the end of this year, it’s likely to reverse course in the first half of next year as GDP growth gathers pace.
Why 2025 could see brighter prospects for the mortgage market
Prasad said he’s been communicating with clients – particularly prospective sellers – that a better market is on the way. “It looks like mortgage rates are going to bottom out in mid-2025, so I think that spring 2025 is going to be a good housing market,” he said.
That’ll be boosted by December’s looming changes in the mortgage market, which will see 30-year amortizations made available to all first-time homebuyers and the insured mortgage cap hiked to $1.5 million.
While the result of last week’s BC provincial election remains in the balance, the New Democratic Party (NDP) has vowed to introduce new measures to boost first-time buyer affordability if returned to government. Each of those rule changes alone would likely be insufficient to boost the market – “but when you combine these different programs with improving employment and improving rates, that should shift it,” Prasad said.
The Bank of Canada released its survey of consumer expectations for the third quarter last week, indicating an improving overall outlook.
Expectations for inflation have fallen “significantly” from the prior quarter, the central bank said, with perceptions of financial stress also improving. “However, consumers expect interest rates to remain elevated,” the Bank noted, “which is affecting their spending decisions.”
CMP
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