With the Bank of Canada's (BoC) next rate announcement just around the corner on July 30th, many are holding their breath, but perhaps not for the reasons you think. While a rate cut might be on everyone's mind, the current market signals suggest we shouldn't expect one just yet. Understanding the broader economic landscape is crucial for navigating the GTA real estate market.
Market Realities: "Not Yet" on Rate Cuts 📊
Despite the anticipation, the probability of a rate cut on July 30th is currently under 10%. Why the low odds? Stronger-than-expected job numbers and persistent core inflation are key factors keeping the BoC's hand steady. Even looking ahead to October, a rate cut remains a 50/50 shot at best.
Following a significant increase last week, 5-year bond yields have stabilized slightly above 3%. Should these yields remain high, fixed mortgage rates are likely to experience further upward pressure. It's important to note that these 5-year bond yields are not directly influenced by Bank of Canada rate decisions. Instead, they are primarily shaped by factors such as inflation expectations, economic growth, credit risk, and overall global market sentiment. This current rise in long-term bond yields is a global phenomenon affecting multiple countries. The underlying causes consistently point to excessive government spending, expanding deficits, declining productivity, and persistent inflation.
The Looming Mortgage Renewal Wave 🌊
Here’s a critical point to consider: Half of all Canadian mortgages are set to renew in 2025-2026. If you secured a 5-year fixed mortgage in 2020 or 2021, you could be looking at renewal rates nearly double what you initially paid. This massive wave of renewals presents a significant pressure point for the Canadian economy, especially given Canada's position as one of the most indebted nations globally. High debt coupled with high rates creates fragile ground for many homeowners.
Mortgage Renewals by Year (Source: CMHC)
The Future of the Condo Market: A Supply Crunch Ahead 🏙️
While Toronto's pre-construction condo sales are currently at their lowest in decades, leading to some units selling at 2017-2018 prices, a significant shift is on the horizon. Developers often need to pre-sell 70% of units for financing, a target many are struggling to hit, resulting in shelved or canceled projects. This dwindling future supply could mean virtually no new condo completions by 2030.
This reduction in current sales is planting the seeds for a condo supply crunch in the coming years, potentially leading to a bull market in the 2030s once the current backlog is absorbed. Furthermore, almost all new housing starts are purpose-built rentals, which won't enter the resale market, further tightening supply.
Single-Family Homes: Increasing Scarcity 🏡
Single-family building permits in Ontario continue to decline, reinforcing the growing scarcity of this housing type. While major metro areas still have a decent supply, this can change rapidly with even a small demand spike or a drop in new listings.
Pent-Up Demand and Consumer Confidence 🔑
Despite some recent upticks, Ontario home sales on a per capita basis are currently at 1990s levels. This indicates a massive amount of pent-up demand waiting on the sidelines. While population growth is slowing and temporary residents are leaving (primarily impacting rental demand), the core buyer pool of permanent residents is expected to remain steady.
The real estate market moves in cycles, and the current holding pattern is largely a waiting game for renewed consumer confidence. When that confidence returns, whether driven by a rate cut, improved affordability, or simply a shift in sentiment, expect significant momentum to follow.
Your Guide in a Shifting Market 🤝
Navigating these complex market dynamics requires expertise and a proactive strategy. As your trusted real estate advisor, Ali Bolourchi and his team are here to guide you through every decision, ensuring you are well-prepared for what's ahead. Your real estate journey is our priority, and we're committed to empowering you with the knowledge and insights needed to succeed.
