Bank of Canada rate cut saves housing market: CoStar

Contents of the article

Bank of Canadarecent interest rate cuts may have saved housing market from collapse, but they will not be enough to restore the previous level of activity, says the chief economist real estate Analytics giant CoStar Group Inc. announced this this week.

Contents of the article

Recommended Videos

“I think the housing market is just moving forward, essentially the rate cuts are keeping it from crashing, but it’s not necessarily going to take off again,” Carl Gomez told the Financial Post on Wednesday. “If you look at where mortgage rates are today, they’re down a little bit, but not that much, and they’re certainly not going back to the lows they were in the last decade. So the housing market will revive, but it won’t explode again like it did before.”

Gomez added that most of the mortgages and debt people use to buy real estate are calculated through bond yields, which are dictated by the market, not the Bank of Canada. US bond yields, which drive Canadian bond yields, rise after re-election Donald Trumpas it signaled a pick-up in economic activity and inflationary costs, reigniting market concerns about inflation. The Bank of Canada’s policy rate currently stands at 3.75 percent after four consecutive cuts this year.

Contents of the article

“The 10-year Government of Canada yield, the benchmark for long-term bond yields, remained at three-and-a-half percent,” he said. “This means that even though the Bank of Canada is cutting interest rates, long-term bond yields, which drive the market, have remained at that three percent.”

CoStar Group, a real estate company providing marketing services and analytics for real estate markets, released its 2025 Canadian growth forecast on Wednesday. The forecast highlights a weakening Canadian economy, with output currently well below its potential level.

“When we adjust GDP growth by population, unfortunately we have been in recession for almost two years,” Gomez said during the webinar presentation. “If you look at GDP per capita growth adjusted for population growth—excessive population growth from about 2023—we are declining.”

Contents of the article

Gomez says Canada’s economy is expected to grow 1.4 percent next year, but two major risks remain to that forecast that could knock economic growth down a full percentage point over the next two years: potential trade disruptions from US President Donald Trump and Canada’s recent measures. announced cuts to its immigration targets, meaning negative population growth.

In addition, Gomez noted that households still have a “bunker” mentality, so a recovery in consumption next year is doubtful. While the mortgage extension cycle has moved away from previous “cliff” warnings as the central bank cuts rates, it should remain a risk factor into next year, Gomez said.

“Consumer spending accounts for 60 to 70 percent of the economy,” Gomez said. “So there will still be an impact here even if rates go down and we move away from the cliff.”

Contents of the article

Another important factor to watch next year will be the labor market. The forecast notes that mortgage debt and unemployment are closely linked, and higher job losses could impact the number of households unable to make monthly mortgage payments.

In terms of inflation, the CoStar forecast reports that Canada has entered a deflationary period, with the inflation rate approaching 0.85 percent when home prices are removed from the consumer price index. Gomez believes the Bank of Canada should continue to cut rates and cut them quickly, returning to a neutral rate of around 2.5 percent.

“If anything, once the inflation target is achieved, the policy rate should be more neutral,” Gomez said. “That’s why I still think they have a responsibility to cut and they should probably start cutting spending right away to avoid the risk of what might happen to the economy if you fall behind the curve.”

• Email: [email protected]

Bookmark our site and support our journalism: Don’t miss important business news – add financialpost.com to your bookmarks and subscribe to our newsletter Here.

Contents of the article