With interest rates falling and home prices expected to rise, prospective homebuyers and homeowners with mortgages coming up for renewal are wondering if relief is in sight. While housing affordability is expected to improve, it is unlikely to return to pre-pandemic levels. Regional differences will persist, with Ontario and BC remaining prohibitively expensive, while Alberta stands out as relatively more affordable. Rate cuts are expected to provide some relief, but the timing of further cuts will depend on economic performance. Since the first rate cut in June, new GDP and inflation data have been released, which will influence future rate decisions.
Canadian GDP grew by 0.3% in April compared to March, with gains evenly distributed between the goods-producing and services-producing sectors. However, the data for May indicates that this improvement wasn’t sustained. Quarter-to-date data shows that output per capita has declined for the seventh time in the last eight quarters. Although the economy is growing, it is below its potential, leaving room for growth without increasing price pressures.
Following a string of soft CPI reports, May saw an unexpected increase of 2.9%, the first upside surprise of the year. While energy prices softened and food prices remained unchanged, core inflation measures rose. The Bank of Canada’s preferred core inflation metrics—median and trimmed—posted their largest increase since last December, pushing the three-month growth rate of these measures back above the 2% target.
The Bank will closely monitor the upcoming CPI release and employment data before making a rate decision in July. Any potential rate cut will depend heavily on this data. Even if the Bank holds off in July, there is still potential for three rate cuts later this year.
For homeowners renewing their mortgages or prospective buyers seeking rate relief, we expect borrowing costs to decrease in the latter half of the year. The Bank of Canada’s policy decisions will have the most significant impact on variable-rate mortgages. For fixed-rate mortgages, it’s essential to also consider the actions of the US Federal Reserve. Currently, the Fed is on hold and is unlikely to cut rates until late 2024. This will likely be the biggest constraint on lowering fixed mortgage rates, as Canadian bond yields tend to follow U.S. rate movements.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
The Canada Mortgage and Housing Corporation (CMHC) plays a crucial role in ensuring Canadians have access to affordable housing through financial assistance, policy recommendations, and research. Amid Canada’s growing housing crisis, CMHC’s insights and projections are key to developing effective housing strategies.
CMHC estimates that around 3.5 million new housing units are needed by 2030 to restore affordability. This figure has garnered significant attention, highlighting the immense challenge of closing the housing gap. However, a recent study by the Parliamentary Budget Office (PBO) offers a different perspective on this pressing issue.
What data and assumptions explain the discrepancy between CMHC’s and the PBO’s perspectives? More importantly, what is the accurate number of housing completions needed to restore affordability? Find out in our latest Housing Affordability Watch: Has CMHC Missed the Mark?
Independent Opinion
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