Lenders continued to chip away at their fixed rate pricing over the past week, mirroring the drop in bond yields over the course of the month.
Since hitting a recent peak of 3.57% in early July, the Government of Canada 5-year bond yield has fallen by roughly 20 basis points (0.20%).
This has led to small but steady rate drops for certain mortgage types and terms, generally ranging from 5-15 bps (0.05%-0.15%).
“Government of Canada bond yields were range bound last week, holding on to their previous declines,” noted mortgage broker and commentator Dave Larock of Integrated Mortgage Planners. “Fixed mortgage rates have started to move lower in response.”
Data from the Bank of Canada show average 5-year fixed rates as of May had dropped to 4.90% (for insured, or those with a down payment of less than 20%), and 5.33% for uninsured. And rates have continued to ease since then. That’s down from a peak of 5.54% and 5.78%, respectively, reached in November 2023.
Meanwhile, discounts on variable rates have tightened up slightly, Larock points out in his latest blog post. Despite the tightening discounts, variable rate holders are likely to see their interest costs drop this week.
Financial markets have fully priced in a second consecutive quarter-point rate cut by the Bank of Canada, set to be announced on Wednesday. This reduction in the central bank’s policy rate will directly lower the prime rate, which in turn influences variable mortgage rates.
“Variable-rate borrowers should expect a rate cut this Wednesday and several more to follow,” Larock wrote. “I think the Bank’s policy rate is too high based on our current economic conditions. If the Bank wants to skate where the puck is going, it will need to start hustling to get there.”
Canada’s Housing Plan may bring prices down in some markets, says Minister
Canada’s housing plan could put upward pressure on home prices, according to Sean Fraser, the federal Minister of Housing, Infrastructure and Communities.
“It’s not my goal to bring down housing prices. My goal is to build more supply at prices that people can afford,” he told Bloomberg in an interview. “Some of the measures that we put in place that will drive that supply could have downward pressure on the price of homes in different markets.”
The plan includes financial incentives for homebuilders and adjustments to immigration policies to ensure a steady flow of skilled workers in the construction industry. Fraser emphasized the importance of balancing supply and demand to avoid exacerbating the housing crisis.
At the same time, Infrastructure Canada announced a formal Request for Proposals (RFP) for the first iteration of the government’s Housing Design Catalogue. This initiative, unveiled in Budget 2024, aims to streamline and standardize housing designs to expedite construction and reduce costs.
Royal LePage forecasts a 9% rise in average home prices in Q4
In its latest forecast release last week, Royal LePage says the aggregate price of a home in Canada could reach an annual growth rate of 9% in the fourth quarter of this year.
That would be substantially higher than the 1.9% year-over-year growth rate recorded in the second quarter, but is expected to be driven by subsequent Bank of Canada rate cuts in the second half of the year. According to Royal LePage poll results, 51% of sidelined homebuyers said they would resume their search if interest rates reversed.
The agency noted that the Bank of Canada’s June rate cut has yet to significantly boost real estate activity, resulting in a buildup of housing inventory and continued downward pressure on house prices.
“Canada’s housing market is struggling to find a consistent rhythm,” said Phil Soper, president and CEO of Royal LePage. “Nationally, home prices rose while the number of properties bought and sold sagged; an unusual dynamic.”
The Royal LePage House Price Survey reported that the aggregate price of a home in Canada rose to $824,300 as of Q2.
When segmented by housing type, the national median price for single-family detached homes rose by 2.2% over the past year, reaching $860,600. Similarly, the median price for condominiums saw a year-over-year increase of 1.6%, climbing to $596,500.
Canadians feeling worse about their finances, but better about real estate: Nanos
Despite Canadians feeling slightly worse about their finances, the latest weekly Nanos consumer confidence poll showed an improvement in how they view real estate.
The poll found that financial concerns are growing, with a reading of 14.76, down from 15.28 last week and the six-year average of 17.90.
“People are three times more likely to say their personal finances are worse rather than better compared to a year ago,” noted Nik Nanos, Chief Data Scientist. The weekly telephone poll included responses from 1,120 Canadians.
Meanwhile, optimism about the real estate market is on the rise, with a reading of 47.74, up from 46.42 last week and a long-term average of 40.11. However, that’s down from 49.22 four weeks ago.
Overall, the results show consumer confidence moved down slightly to 53.19 compared with 53.95 four weeks ago and a 2024 average of 52.82.
Looking at other specific measures of consumer confidence, sentiment on the Canadian economy deteriorated compared to last week, while sentiment towards job security improved marginally.
Mortgage snippets
- Toronto condo sales hit 27-year low: Sales of new condos in Toronto in the first half of 2023 plunged to their lowest level in 27 years.
Sales dropped 57% from last year, totalling just 3,159 transactions in the first six months of the year, according to a report by consultancy Urbanation on Thursday. This marks the lowest first-half sales since 1997, and has contributed to a record rise in unsold inventory.
- High prices are prospective homebuyers’ biggest hurdle: High home prices are the most significant challenge for prospective homebuyers in Canada, with 38% citing it as their biggest hurdle, according to the latest report from Point2Homes. Following high prices, the next two biggest obstacles are insufficient savings for a down payment (27%), a low credit score (12%) and high mortgage rates (9%).
Despite these challenges, there is a growing trend of solo homebuyers in the Canadian market, with 42% of respondents saying they plan to apply for a mortgage in their name only. Another 37% plan to apply with a spouse, while 9% plan to get a mortgage with a family member, and another 8% with a life partner.
“What used to be the default for decades—meaning applying for a mortgage with a spouse—is taking second place to going it alone,” the report said. “The number of Canadians living alone is increasing—and they are becoming increasingly comfortable with the idea of taking up the challenge of homeownership on their own.”
A recap of last week’s headlines:
Fastkey facilitates quick and secure CRA document access for lenders and brokers
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FSRA introduces stricter guidelines for mortgage broker licensing
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Bank of Canada rate cut grows more likely as retail sales slump
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How extreme weather events—like this week’s flooding in Toronto—are reshaping mortgage risks
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How a private bridge mortgage can save the day when your home hasn’t sold
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Inflation report “all but guarantees” a Bank of Canada rate cut next week
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CMHC says annual pace of housing starts in June down 9% from May
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Last modified: July 22, 2024
