Good news. Canada prevented the mortgage cliff that would have seen existing borrowers pay more. The bad news? The rapid rate cuts and extended amortizations are only expected to help new buyers for a few weeks before further affordability erosion. That was the take in a new report from Oxford Economics, who doesn’t see affordability returning until 2035. The fuel being added to the fire means mortgages aren’t expected to get much cheaper, with borrowing costs forecast to start climbing in 2026. That’s good news for the economy but not so much for those looking for housing affordability improvements that last longer than the election cycle.
Canadian Housing Affordability Won’t Return Until 2035, Later In Toronto & Vancouver
Falling mortgage rates and 30-year amortizations are expected to boost affordability early next year. The impact will be short-lived since the excess leverage will help to raise home prices. As home prices rise and mortgage rates start to rise (yes, rise) that affordability boost is expected to fade.
Slower population growth is expected to help slow rising prices, but affordability will take a long-time to return. “…we still think it will take around a decade to restore housing affordability at the national level,” explains the report.
The epic combination of cheap credit, bailouts, and increased leverage will take its toll for some time. Their forecast sees affordability returning by 2035 for Canada in general. More expensive cities like Toronto and Vancouver are forecast to stay out of reach indefinitely for the average household.
Bank of Canada To Cut Rates But Fixed Rate Mortgages Already Lower
The economists see further rate cuts from the Bank of Canada (BoC), but it won’t be helping new borrowers. The aggressive 50 basis point (bp) cut to the overnight rate in October is expected to almost eliminate the concerns of a rate renewal cliff. The firm’s economists expect another cut of 50 bps in December, and four more 25 bp cuts in the first half of the year. When it all shakes out, the overnight rate is expected to fall to 2.25% by June 2025. It’s a substantial move, but it only impacts the relatively small share of variable rate borrowers.
The BoC’s overnight rate only directly influences variable rate mortgages. Fixed rate mortgages are influenced by Government of Canada (GoC) bond yields. Currently fixed rate mortgages are significantly lower than variable mortgages, so the cuts won’t be contributing much more credit capacity than already available in the short-term. Additional real estate activity from further rates would be largely based on sentiment.
“However, we don’t think mortgage rates have much further to fall,” warns the firm’s economists.
Canadian Mortgage Rates Won’t Get Much Lower, To Rise In 2026
The decline in fixed-term mortgage rates is forecast to stall around this level before climbing. “ The average five-year conventional mortgage rate has already dropped around 100bps from its peak in late 2023 to 5.4% in October 2024. We think it will hover in this range through mid-2025, before rising bond yields and slightly tighter monetary policy cause it to edge higher in 2026,” forecasts the firm.
That may sound like bad news for borrowers but it implies good news for the economy. Rates climb when inflation climbs and economic output is running close to peak productivity. As a result, the economy would have to be performing so close to its peak that the central bank needs to throttle credit growth. It’s a scenario that’s hard to believe in a little over two years but that’s a general theme throughout the 2020s.
A lack of affordability seems like a bull case for housing, no?
The title of this article has nothing to do with reality. Better dwelling nearly always uses some form of headline saying how terrible things are about to get, in a cheap attempt to gain readership. Even in this article, most of what they talk about is falling mortgage rates, not rising. Don’t make any financial decisions based on the rubbish published here, use a financial/economist based article from a reputable site that does not always beat the same drum with every article.
Let’s see, their Youtube has interviews with the Bank of Canada governor, the Federal Reserve, and Big Six economists.
I just found this site because my MP (an independent) shared an article citing their interview with a US Congress Person. Not sure how you get more reputable than being an outlet that secures interviews MSM can’t get.
As for the title, the chart LITERALLY shows mortgage rates rising, genius. They quoted the same expert that’s always on Bloomberg, and the title is almost his exact quote. Canada’s in the crapper because people like you started building narratives that everything you don’t like is a lie.
I just signed a variable rate mortgage to capitalize on future reductions prior to locking in. This may be false economy if locked rates are going up. Is there a sweet spot projected for making the change?
Sure David. It happens after the market crash, since the BoC now seems to be worried about deflation.
More people need to realize the gov borrowing means higher rates than if the public used that capital. Selling GOC bonds to buy mortgage bonds may lower costs temporarily but as soon as the election is done it’s going to have to rip higher and since those issues compound.
Changing the methodology to chronically underreport inflation can only go so far, eventually people start feeling it.
Temporary intervention works temporarily, but it’s never without cost. Silly of gov to have even suggested that was never the case.
Only lemmings follow the leader over the cliff.
A nice big house or luxury condo will suck every penny out of the unemployed pockets after the recession throws millions of people out of work.
We only buy at the lowest prices and activity in the market when people are super desperate to sell or lose their equity to the banks and insurers.
Bank of Canada MUST lower rates to 0% to save house prices. Millions of Canadians depend on their house to increase in price and it will hurt the economy if prices drop.
I really hope this is sarcasm, but I’m worried that it isn’t.
It’s all fine and well to make predictions based on established indices.. but I can’t help to think it is much like Einstein trying to mathematically explain the Big Bang. On the street, real estate is in quagmire.
New USA houses cost less than 400K
See youtube, zillow, redfin and landsearch etc.