Residential Market Commentary - Ongoing Uncertainty Concerns

  • First National Financial LP

Canada’s housing market is soft and the economy is sluggish.  Those two things are related and the key villain here is uncertainty.

Mixed messaging from the United States, most recently as it relates to the Israel/U.S. war in Iran, is compounding global apprehensions about the erratic economic and trade policies of the current American administration.  That, in turn, is stoking inflation fears, which are pushing up bond yields and triggering increases in fixed mortgage rates.

It is a long chain of events that appears to be holding potential homebuyers on the sidelines.  Rising interest rates have contributed to worsening affordability in 11 of 13 Canadian markets, even though prices are drifting lower in many major centers.  (Quebec, parts of the Prairies, and Atlantic Canada are notable exceptions.)

Lower prices would normally be seen as an opportunity to buy. Currently though, broader economic conditions appear to have purchasers worried their asset will depreciate rather than provide positive equity.  It is a very odd case of reduced prices working against themselves.

However, “timing the market” is aways a gamble and right now that is especially true.  Concerns about the potential for rising inflation have already triggered speculation about another round of interest rate hikes by the Bank of Canada.

The central bank says it will take whatever steps are necessary to keep inflation in check.  Right now, though, the Bank appears to be more concerned about the fear of inflation, rather than actual inflation.

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