The Bank of Canada’s 25-basis-point cut in September was at best ignored by the national market, with sales falling 1.7 per cent compared to the month before. (REUTERS/Blair Gable) · REUTERS / Reuters
Canada’s housing market is looking closer to its old, pre-pandemic self — fractured by region, shaped by local economic factors and behaviours, and no longer moving in lockstep with the Bank of Canada’s interest rate decisions.
The BoC’s 25-basis-point cut in September was at best ignored by the national market, with sales falling 1.7 per cent compared to the month before. As the central bank’s next announcement approaches, economists and brokers report its influence is being overpowered by region-specific affordability issues, entrenched regional psychology and — most of all — concerns about employment.
“It’s not one big housing market,” said National Bank of Canada economist Daren King. “It’s always plenty of small regional markets with plenty of regional differences. And the last four or five years have been the exception because of the pandemic. Everybody wanted to buy a new home at the same time.”
In an analysis of September’s national real estate data, King writes that the “balanced” conditions nationally mask weak markets in Ontario and B.C. — where affordability remains a huge issue even as prices have dropped — and sellers’ markets elsewhere.
A hold on Wednesday could mean a “slight decrease” in activity, King says, while a cut might yield a small increase, “but I’m not expecting a five per cent increase in transactions, for example, even with an interest rate cut.”
Another 25-basis-point cut won’t make much of a financial difference for many, notes Leah Zlatkin, a licensed mortgage broker and LowestRates.ca expert. “For every $100,000 borrowed, you’re going to lower your monthly payment by something like $13 to $15,” she said. “For somebody in a province where their mortgage is $200,000, that’s 30 bucks a month.”
Rate cuts are also only directly reflected in variable-rate mortgages, Zlatkin notes — and few people currently believe variable rates will go much lower. “Many clients were burned in the past,” she said, and few are willing to gamble on variable rates staying low.
With monetary policy’s direct impact waning, attention shifts to broader economic anxieties like the U.S. trade situation, as well as local conditions, King says.
People are used to homes flying off the market and when they don’t, it makes them question why.Broker-owner Chris Perkins on the Halifax market
“If tomorrow we have an agreement that is favourable for us, we’ll probably see a big rebound in markets like Toronto and Vancouver,” King said. “But uncertainty is compounded by the effect of affordability. In those very unaffordable markets, only a small uncertainty is amplified by the affordability problem.”
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Ontario faces a “very soft” labour market, King adds. Zlatkin agrees the job situation is key, noting youth unemployment at record levels and job security fears coming even from white-collar clients. “Never in my career have I had those conversations before,” she said.
Local psychology also matters. In Halifax, a resilient economy — with universities, naval installations and tourism helping to keep jobs stable — buffers volatility, says Chris Perkins, a broker-owner at Coldwell Banker Maritime Realty. But Nova Scotians are “suspicious of change,” responding cautiously to rising inventory. “Higher inventory in my mind should be a positive for a purchaser, but it seems to be having the effect of creating uncertainty instead,” he said.
“People are used to homes flying off the market and when they don’t, it makes them question why.”
Given the muted reaction to the September cut and data showing subdued consumer and business sentiment, the immediate impact of another potential BoC move this week is expected to be minimal.
Instead of a national rebound, experts expect any market recovery to remain uneven, dictated by local conditions. Further rate cuts might help in the Toronto and Vancouver regions, King writes in his analysis, but the “deterioration” of the labour market and “persistent affordability challenges will limit the extent of potential recovery.” In Montreal, conversely, “the BoC’s policy rate cut and improved consumer confidence, despite the ongoing uncertainty, should help support residential market activity,” he writes.
In Halifax, Perkins suggests the true impact of lower rates might wait for the spring market’s psychology. “If rates are low by March, April, May, that’s when I think we’ll really see the impact,” he said, “because it’s the spring market and ‘Everyone’s buying and I want to buy too.’”
Looking further out, Zlatkin is optimistic long term across Canada, citing the housing shortage and future demand. “Eventually, everything that goes down will come up because there’s enough people that the demand will be there,” she said.
Both King and Zlatkin frame the current market — trade war aside — as closer to normal. “The pandemic was really not typical,” King said. “The level of transactions we have now is roughly where we were before the pandemic, which were record years.”
Zlatkin adds a historical perspective on rates. “Two generations ago, rates were 12, 13, 16 per cent,” she said. “While we feel that four per cent is a lot higher compared to 1.5 per cent where things were during COVID, the reality is we’re still nowhere near where it used to be.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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