The Canadian mortgage landscape is currently a subject of intense scrutiny, following recent changes in interest rates and inflation figures. Here’s a comprehensive look at the current scenario, merging insights from two recent articles, specifically tailored for the Wilson Team audience.

Inflation Figures Stir Debate

Canada’s headline inflation rate spiked from 2.8% in June to 3.3% in July, driven by a 0.6% increase in consumer prices. These figures have divided experts over the implications for the central bank’s policy interest rate.

Doug Porter, chief economist at BMO Capital Markets, has identified a 30% likelihood of the Bank of Canada (BoC) raising rates next month. Porter noted that this inflation rate is now higher than the U.S. for the first time since pre-pandemic days, calling it “not a good report for the Bank of Canada.”

However, Porter also anticipates that a recent rise in Canada’s unemployment rate, coupled with slower spending, could strengthen the case for a BoC rate pause.

Desjardins economist Tiago Figueiredo remarked that the central bank is still far from its 2% inflation target. Former BoC Governor David Dodge emphasized that elevated interest rates would likely need to continue through 2024 into 2025 for the BoC to reach its target.

Impact of Rate Hikes on Home Sales

The two latest rate hikes from the Bank of Canada have had a visible impact on home sales, which fell 0.7% from June to July. This was the first monthly contraction in six months. While sales rose in Saskatchewan (+9%), Quebec (+5.1%), and Alberta (+4%), declines in B.C. (-2.6%) and Ontario (-5.5%) reversed the upward trend. Calgary, however, saw an increase of 9%.

National Bank’s Daren King noted that record demographic growth in Canada is aiding in preventing a significant drop in sales.

Home Prices: A Cross-Country Roundup

The national average home price continued to slide in July to $668,754. Although this figure is 6.3% higher than the previous year, it’s down over 18% from February 2022’s peak of $816,720.

A brief overview of provincial and municipal average house prices as of July illustrates varied trends, with some regions experiencing growth while others face declines.

Resale Market Moving Towards Balance

The Canadian Real Estate Association (CREA) reported that the number of newly listed homes increased for the fourth consecutive month, rising 5.6% from June. This has caused the sales-to-new listings ratio to ease, and the supply has also ticked up slightly.

“With sales dipping and resale supply on the rise, markets are moving towards being more balanced,” observed TD Economics’ Rishi Sondhi.

Looking Ahead

While the real estate market appears to be settling down, some experts warn of continued headwinds from elevated interest rates. Interest rates are expected to remain at current levels into next year, according to BMO’s Robert Kavcic, which will continue to challenge the housing market.

The interplay of inflation, interest rate policies, and market trends paints a complex picture for potential homebuyers and sellers. Understanding these dynamics is key to making informed decisions, whether you are looking to buy a home, sell one, or gauge the market’s overall direction.

With the Wilson Team’s guidance and tailored mortgage strategies, you can navigate this evolving landscape with confidence.