The trade war has fought Canada’s ever-resilient housing market to a standstill.
Remove the distraction of tariffs and housing bounds ahead, right? Unless mortgage rates start falling, probably not.
Unfortunately, many people use the low rates of four to five years ago as a reference point for mortgage costs. Rates plunged in the pandemic to a point where five-year fixed mortgages could be had for less than 2 per cent, and variable-rate mortgages were roughly 1 per cent. Comparable rates today are close to 4 per cent, which looks expensive.
We have the economic conditions to justify lower borrowing costs in Canada, specifically a slowing economy and a weak job market. But the trade war’s impact on global financial markets has effectively blocked lower rates for now.
The Bank of Canada recently passed on two straight opportunities to cut its overnight rate, which influences variable-rate mortgages. In the bond market, which sets the trend for mortgages, rates have been more or less stuck for months. If anything, there’s a bias right now to higher bond yields.
Could it be that today’s rates are a new normal for mortgages? If you’re a prospective home buyer, it’s best to start thinking this way. For the remainder of this year, the biggest affordability improvements for housing could come from falling home prices, not lower mortgage rates.
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