30 Jun

Residential Market Commentary – Bank of Canada balancing act

General

Posted by: Frank Fik

Expert opinions on Bank of Canada interest rate cuts are shifting. A growing number of market watchers are backing away from their predictions of two more reductions this year. Several are now saying the Bank has likely reached the end of the current trimming cycle.

The central bank held its trend-setting Policy Rate at 2.75% for a second time in its decision on June 4. Since then, inflation numbers and Gross Domestic Product readings have given the BoC reasonable grounds to stand pat.

Statistics Canada’s latest figures for GDP show it declined by 0.1% in April compared to March. Much of that decline was led by the manufacturing sector, which is falling victim to U.S. tariffs and trade uncertainty. A similar reduction is forecast for May. While many economists admit the slowdown shows the economy is softening, they say it is not on the verge of collapse. GDP is 1.3% higher that it was a year earlier.

The other key factor in the Bank’s rate decisions, inflation, held steady at 1.7% in May. That headline number is actually below the Bank’s target of 2.0% and would normally suggest there is room for a further rate cut. However, that is a little deceiving.

Headline inflation (aka the Consumer Price Index) continued to be skewed by the elimination of the consumer carbon tax. As well, core inflation, which is the BoC’s preferred measure, remains stuck at 3.0%, which is the high end of the Bank’s desired inflation range.

The Bank finds itself trying to balance economic growth against the risk of rising inflation. The Bank’s next interest rate announcement is set for July 30.

Published by First National Financial LP

23 Jun

Residential Market Commentary – Renters retreat from the market

General

Posted by: Frank Fik

A key segment of Canada’s first-time homebuyer market appears to be delaying its purchasing plans.  A new survey by real estate giant Royal LePage suggests renters are holding back, waiting for further price declines.

The survey finds that 40% of renters, who considered buying before signing or renewing their current lease, are waiting for property prices to drop.  Another 29% are waiting for further interest rate reductions and 28% say they are continuing to rent while they save for a down payment.

The market has become more buyer friendly (prices are off their peaks, interest rates are down and supply is up) but affordability is a primary concern for renters.  Across Canada, 15% of tenants say they spend more than half of their net income on rent.  More than half of renters (53%) believe their income will not allow them to buy in their preferred neighbourhood.

Beyond the financial concerns, nearly a third of renters (31%) say they have no intention of buying.  Of that group, 40% say renting is more affordable, and another 40% simply do not want the responsibilities associated with homeownership.

At the same time rental costs, while still high, have been moderating.  One national analysis shows, average rent for a one-bedroom unit declined 3.6% year over year to $1,857 in May 2025.  Two-bedroom rents fell 4.6% to $2,225.

The survey suggests the desire for ownership remains strong with 54% of renters saying they intend to buy a home “in the future”.  Sixteen percent expect to make the move within the next two years, 21% are looking to buy in two to five years.

Published by First National Financial LP

9 Jun

Residential Market Commentary – BoC holds rate steady

General

Posted by: Frank Fik

The Bank of Canada has stayed on the sidelines for its second rate setting in a row, so Canadians hoping for some interest rate relief are going to have to wait a little longer.
The central bank’s trendsetting Policy Rate remains at 2.75%.
In the comments that came with the rate hold Bank Governor Tiff Macklem noted that the Canadian economy is “softer, but not sharply weaker.”  The Bank points out that the labour market is pulling back, particularly in trade-intensive sectors like manufacturing and wholesale.  The unemployment rate rose to 7.0% in May.
Inflation data remains mixed.  Headline inflation dipped to 1.7% in April but that was largely due to the elimination of the federal carbon tax.  Measures of core inflation, which the Bank prefers to monitor, continue to increase and have risen above 3.0%, which is the top of the Bank’s target range.  As well, business and consumer confidence is slipping, with growing expectations that inflation will worsen.
Inflation fears, and the overall economic jitters that are being felt everywhere, are being blamed on the continuing uncertainty about U.S. tariffs and trade policy.  The erratic behaviour in Washington appears to have the Bank repositioning itself to respond to changes rather than trying to act as a guide through the economy.
“Faced with unusual uncertainty, [the] Governing Council is proceeding carefully, with particular attention to the risks.  This means we are being less forward-looking than usual,” Macklem said.
The Bank of Canada’s next interest rate announcement is set for July 30.
Published by First National Financial LP
2 Jun

Residential Market Commentary – GDP and interest rates

General

Posted by: Frank Fik

Canada’s gross domestic product posted better than expected growth in the first three months of this year.  GDP, which is the total value of all goods and services produced by the economy, increased by an annualized rate of 2.2% in the first quarter, up from 1.7% for the same period a year ago.  Analysts had been forecasting a 1.7% increase.

Q1 GDP was up 0.5% compared to Q4 of 2024.

The figures from Statistics Canada suggest the economy is holding its own, but many experts are warning that the numbers may be misleading.  They say businesses and industries likely boosted production in an effort to “front run” wide-ranging tariffs threatened by the United States.  The U.S. president announced sweeping, global tariffs on April 2, which he dubbed “Liberation Day”. 

Now that the penalties are in place, production is expected to decline and higher prices caused by the tariffs will likely supress consumption.  GDP growth for the rest of the year is expected to slow and could even turn negative, raising the possibility of a technical recession.

For the time being, though, first quarter GDP growth, an increase in unemployment and a bump in inflation give the Bank of Canada all the reasons it needs to hold off on any further interest rate moves.  Canadians hoping to see a cut may have to wait until later in the year.  Many market watchers are forecasting at least two more rate cuts in 2025. 

The next interest rate setting is scheduled for June 4.  

Published by First National Financial LP