Canada’s central bank delivered a harsh reality check for real estate bulls hoping for cuts. The Bank of Canada (BoC) held its overnight rate at 2.25% this morning, citing recent revisions to economic data that show the economy is doing better than expected. However, they view the broader economy not as a typical business cycle contraction, but as a structural shift towards lower growth. This meeting wasn’t just a pause; it was a recalibration of policy that makes this the floor for interest rates.
Bank of Canada Just Found The Floor For Interest Rates
The BoC held the overnight rate, but the real signal wasn’t the move—it was the tone. The pause wasn’t a “wait-and-see” regarding future cuts. Instead, they explicitly called 2.25% “the lower end of the neutral range.” Forget future rate cut guidance—the BoC just informed the market we’re at the interest rate floor.
They further note the current rate provides “some support,” meaning this is a stimulus point. Those expecting lower rates are betting on a complete economic catastrophe.
Canadian Economic Revisions Eliminated BoC Economic Concerns
The BoC’s tone shift was driven by an actual shift in the existing data. At the last rate announcement, the central bank dismissed elevated inflation data in favour of focusing on weak GDP. In November, Statistics Canada published broad revisions to Canada’s economic growth numbers for 2022 to 2024. The revisions suggest the Canadian economy was healthier than previously thought before the country’s trade conflicts.
Governor Macklem explicitly stated these revisions “alter our assessment of potential output.” Ironically, this is further proof that the BoC shouldn’t have been ignoring the inflation data. It was right—the economy was measured incorrectly. They’re now shifting expectations towards that sticky and elevated Core inflation.
Canada Seeing “Structural Shift”: Code For Higher Inflation & Weaker Growth
The most disturbing part of the BoC’s announcement was Governor Macklem dropping the term “structural adjustment.” For those who left their bureaucrat-to-English dictionary at home, the central bank is stating the economy is undergoing permanent shifts, not just a standard business cycle swing. It’s a diplomatic way of saying the economy is fundamentally being reshaped for higher costs and weaker growth that lower rates won’t address.
Overall, the latest announcement crushes near-term expectations of rate cuts. That’s good news in the context of economic growth, as they’re no longer dismissing elevated inflation due to the perception of an overly weak economy. However, this also means the economy isn’t weak enough to justify further easing. For real estate markets, the hope of cheap money fueling a 2026 rally just evaporated.
Tiff doesn’t think the economy is doing better. He’s saving face after lowering rates against the correct data because the government is now depending on short-term financing to fund its budget. You know better than this steven.
Remember, the boc has a really narrow focus,keep cpi doen,and try not to blow up the economy. The private banks and govt are resposible for both of those respectively, and left thd boc out to dry.
No one in canada outside of ottawa thinks the economy is ok. Wd all know its bax, and going to get worse. The real issue is a ‘seldlf prophessed’ banker who has no plan whatsoever to turn this mess around.
In fact ge and his former bff freeland have likely made things much much worse since 2023.
Cue Realtors about to close on tens of thousands of apartments because they couldn’t sell before completions.
goddamit. Even when the comment makes me laugh it just reminds about how dumb this economy has turned.
Real landlords make sure wages are tied to income and try to support good tenants with stability. The speculators are the ones who buy these things then tell people they can be landlords and just charge whatever their mortgage is, only to find out people have a hard limit on how much they can spend.
The previous article on how almost all of the gta condo market was ‘investors’ is a clue to the problem. A healthy housing markdt is one where nwdian price is related to median family gross income. In the gta, that 75k, which is roughly a 300k mortgage ir 1700 per month.
As you point out when people are paying 90% of their pay for housing, its not a functioning market, whether renters or owners.
The issue is coming down that with canada’s faltering credit rating, basel 3, and declining real incomes, prices still have a long way to drop before hitting bottom.
The general rule of how low can thsy go is once people stop hoping for a rate cut or govt interventionus when it miggt bottom out.
the median income for all households in the Toronto CMA being $84,000 in 2021, according to Statistics Canada, while other sources cite averages closer to $121,000 before taxes for 2024/2025 estimates.
The fact Canada’s economy is so rate dependent is such an incredibly huge problem. In the US it’s an equal problem, but that’s not where we live so we need to focus on making our own economy stronger—not on a relative basis but by benchmarking our own progress.
The bo,c is basically tied up as employment and gdp are ‘up’, even if it is not sustainable or organic growth. So Macklem has no choice here but to stay put.
The problem is with serious pressure on consumers and investors, tge housing market will continue to collapse, as we know arrears and forclisures are extreme lagging indicators.
If, and we can assume this, a substantial portion of the transactions since 2019 are now underwater, there is just a waiting game tillthose collapse and take the market with them. Frankly, given the pm is acentralbanker, i would expecthe would be looming for some sort of program to protect tge consumers who wereconned into this mess from predatoey practices of lenders in canada. But so far he seems mainly interested in propping up prices, not helping people.
Its doubtful this is the floor since january typically sees retail layoffs and loss of pt hrs that made the.last report a surprise. So by march tge prezsure to cut willbe back on. The pdoblem is that given canadas lack of any sort of plan to deal with a najor credit collapse, by then it will be too late.
Maybe now the “real problems” can (at least) be brought back into view: (1) namely the 100% exclusion from capital gains triggered when owner-occupied housing is sold; and (2) slay the perception that housing is always a one-way bet. Let’s face the music, take the medicine, or whatever metaphor you prefer. Over half of the detached housing in this country is owned FREE and CLEAR … the “piggy-bank” for thinly capitalized speculators (mom and dad) or for the bank of Mom & Dad’s capital base (to be used for “helping” their progeny) has to be closed. Promptly – if not sooner. Some people will suggest that I am screaming “fire” in a crowded room, but somebody has to. Soon. And the entire exclusion does NOT need to disappear all at once either. Just enough to break the psychology.