Canadian Real Estate Prices May Hit A Roadblock As Bonds Surge

Canada’s falling bond yields provided cheap mortgage credit, helping to boost home prices. Now it’s reversing course, with Government of Canada (GoC) 5 year bond yields rising sharply. The yields directly influence fixed mortgage rates, and over just a few days they’ve nearly reversed the discount given after the US banking crisis. Higher rates will reduce leverage, and provide a drag on home price growth. 

Canadian 5 Year Government Bond Yields Are Surging Higher  

Canadian government bond yields bounced back rapidly. The GoC 5 year bond yield closed at 3.579% last week, rising 27.13 basis points over 5 trading days, which is an unbelievably rapid climb higher. The yield is now 48.38 bps higher than a month before, meaning more than half the increase was just last week. Trading is closed today for the US holiday. 

Falling Bond Yields Helped To Boost Home Prices Recently

The yield previously peaked at 3.651% in early March, before plummeting to a low of 2.766% after the U.S. banking crisis. A combination of global liquidity injections and storm clouds gathering brought down yields, which in turn made fixed rate mortgages of a similar term, cheaper. 

Canadian home prices have also reversed course during this period. It’s probably not a coincidence that a typical home increased about the same amount as the added leverage from lower rates. Even the BoC has acknowledged that cheaper mortgages fuel higher home prices

Canadian Real Estate May See Yields Knock The Wind Out of Its Sail

That’s why the recent reversal of bond yields is worth paying attention to. It’s just 7 bps, less than a quarter of last week’s increase, away from retaking the high.

Rising yields almost certainly mean rising mortgage rates, making it more difficult for home prices to grow. Whether that drag is enough to lead to falling home prices remains to be seen. 

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  • Dave frazer 8 months ago

    So down we go again we have stil about a 40 % fall to go to get back to 3 times earnings.. The spring bounce is well and truly over.

    • Duddly-Do-Right 8 months ago

      Let’s hope… the bounce has been a wild one. Most houses that did not sell in early 2023 quite literally added $100,000 to their price, when you compared them to their listing price in Jan., Feb, and now… and yet some foolish desperate buyer always scoops them up with the additional $100,000. This RE market is defying gravity and makes absolutely no sense any more.

  • Bev kennedy 8 months ago

    What would have happened post 2008 had liguidity injections not been provided to the time of 114 billion once the accounting deferral mechanism run out of time
    We there not the same primary and secondary markets used by federal provincial and municipal governments to flog their own debt and bonds
    What would have happened regardless of the semantics around our. Banks not needing to be bailed out had this rescue not been provided?
    I believe the public is entitled to better transparency not half truths

    Just as the bank of Canada and the osfi continue to ignore the res flags regarding the cloud of special assessments pending for condos built in the last two decades. Let alone older multi unit. Dwellings
    Owner of such properties can not just walk away in the way governments continue to do for subsidized social housing because they lack the funding to maintain those dwellings and in adequate trickle down funding again for decades
    So when the article speaks of bonds maybe mention the capital markets where they are sold and traded which would be both secondary and primary and ask the bank of Canada what would have happened to our financial system of the at —; billion liguidity auppprt hadn’t been provided to the so called non bank arms of our chartered banks to allow the system to keep functioning the public deserve better than half their us and tapdancing surely from our governments amd media surely plays a critical role in demystifying this deliberate fuddle duddle so to why can hold parliamentarians to account

  • Venkat 8 months ago

    🤣🤣🤣

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