Impact of BoC rate hold on the Canadian housing market

The Bank of Canada has decided to hold

interest rates again, keeping borrowers,

homeowners, and buyers watching closely

for what comes next. With affordability

still a major issue and many Canadians

waiting for clearer signals when it

comes to mortgages,

the big question is, so what does this

mean for the housing market going

forward? For more on this, we're joined

by Daniel Fosh, chief Fosh chief real

estate officer with valerie.ca. Daniel,

thank you very much for joining us.

Thanks for having me. Happy to be here.

Uh does this change anything for home

buyers right now?

Uh I don't think it does. Like I mean,

materially, obviously, their rates that

they're buying with don't really go

down. Most borrowers aren't really using

the variable rate right now. They're

using the Canada 5-year or the the

5-year mortgage, which fixed mortgage,

which is derived from the Canada 5-year

bond yield. Then the bond market has

been a little bit volatile, rates kind

of going up a little bit on that side.

So, the Bank of Canada doesn't really

have a ton of control over what's

happening in in the market at this

moment in time, I would say. Um so, I

don't I don't know if it really

materially changes anything. And um it

must be really hard to decide for people

decide what to do because we we one

moment we hear there might be a cut,

then we hear there might be two, maybe

three rate hikes. Uh how are you

approaching that those possibilities?

Uh honestly, I I think that as it stands

right now, and the Bank of Canada sort

of communicated this, they are waiting

for uh more clarity on on the impacts of

I think trade war is kind of been set

aside right now on the the ongoing

conflict obviously in Iran. And I think,

you know, historically, oil prices can

be sort of unpredictable in the way that

it impacts the market. You can either

have this huge spike in inflation that

leads to demand destruction, and that

causes a recession and rates need to

come down to stimulate the economy,

um or it can be kind of stickier

inflation and actually cause rates to

need to come up in the near term. And I

think that they're sort of waiting to

see which outcome we're dealing with. I

think history would say you you sort of

seen more recession outcomes than sticky

inflation outcomes, but I don't think

they're in a hurry to make a move until

we actually have results, and we need a

couple of months worth of what's

happening to job numbers, what's

happening to inflation, etc., before I

think they can make a call on it. And

with all that

uh uncertainty, are a lot of people just

sitting on the sidelines if you if

they're looking to buy?

I would say like more than ever. I so

far year-to-date, our numbers from

Canadian Real Estate Association and the

Toronto numbers uh were worse than last

year, and last year was one of the worst

real estate markets that we've seen in

Canadian history. And so,

it seems like, you know, there's the

economic uncertainty, there's the job

impact, there's the, you know, the um

the knock-on effects on inflation and

constricting household finances. People

seem concerned, and rightly so, and

they're not going to rush into a major

household financial investment like

buying a home until they have some

clarity on the direction that they can

expect the economy to go. And that must

be putting pressure then on sellers,

too.

For sure. I mean, it's interesting

because sellers have sort of

they weren't trying as hard we're not

we're not seeing much supply so far this

year as we did last year, so sellers

aren't trying as hard to get their homes

sold as they were last year. The sellers

who, you know, wanted want to get a

transaction, they have to come down and

meet the market where it is. Um you

know, the other part is new homes,

right? New homes basically just went

down like 10% in value as a result of

HST being erased, and that's a factor

because that competes with your resale

supply. So, I think the market in in the

spring market of this year is going to

be very dynamic, and and it definitely

is putting downward pressure on on

equity for for homeowners and sellers.

And and for people who are selling, a

lot of people have mortgages coming up,

and so this

I I I think everybody's feeling the

pressure right now, but what are they

facing with the way we're standing pat

right now with the mortgage with the

rates?

Yeah, so I think, you know, as it

stands, we have the most mortgages ever

in Canadian history up for renewal in

2026. Bank of Canada's recent read on it

was about 33% of those individuals are

going to renew at higher rates. OSFI had

said that, you know, they're expecting

about 150,000 Canadians going to

experience financial stress as a result

of of the mortgage renewal wave. And so,

I think it's it's definitely a dynamic

that's probably going to continue to be

at play. You have the the borrowing

environment obviously constricts buyers

on the demand side, but it also can

create supply on the sell side by

creating distress for sellers who now

need to sell their homes to access that

liquidity. So, I think it's, you know,

it's it's a moving target.

As it stands right now, the easiest way

to measure it is sort of what's the

mortgage delinquency rate doing, and

it's rising, but it's still historically

low. Typically rises in tandem with your

your unemployment rate. And then, what

are power of sale listings or

foreclosure listings doing at a national

level? And they're still rising as well,

and at very elevated levels.

And what are you seeing what what are

people doing when it comes to renewals?

Are you seeing

a

clear pattern, or is it all over the

place?

Uh so, as it stands right now, I mean,

most recent CMHC data says that

consumers are taking primarily the

3-to-5-year sorry, the 3-year fixed, so

less than a 5-year. And the reason would

be, you know, they're probably

anticipating that they feel rates will

be lower at some point in the future,

but they're not willing to take to roll

the dice on it enough to get the

variable rate trade, which is different

from this time last year when we did see

a resurgence of people get getting the

variable rate trade while people were

while the Bank of Canada was cutting and

they were seeing more downside in rates.

So, consumers have sort of like buyers

and sellers and refinancers are sort of

behaving as though they feel that there

is downside to rates, but they're not

confident in when that is actually going

to take place. And it's a difficult

situation because

the the fix is so so removed now from

from the Bank of Canada.

Yeah, like I mean, the the bond market

is sort of pricing that it feels that

rates, you know, are more likely to go

up than down.

You know, the bond market historically,

at least on on predicting sort of Fed

funds futures and and Bank of Canada

rate decisions, isn't exceptionally

accurate because, you know, it's

time-stamped for today, and the

variables change over the duration of

the the the the bond, but

it would indicate that, yeah, like your

5-year fixed rate is climbing, you know,

the the mortgage market does feel like

there's there's probably at least

lenders are pricing in a bit more risk,

but also the bond market is pricing in a

a bit more inflation, at least as a

result of sort of the ongoing tensions.