Juggling Dynamite

The Bank of Canada has slashed overnight interest rates by 200 basis points over the past seven months to 3% from 5%, while variable and fixed mortgage rates have fallen to around 4% from more than 5% a year ago.

Mortgage rates of around 4% are not high; they are about average historically. The trouble is that they are about double those accessed during the pandemic.

Over one million fixed-rate mortgages are up for renewal in 2025; 85% were taken out during 2020-21 (CMHC data) when the Bank of Canada rate was less than 1% and fixed mortgage rates less than 2%.

Debt payments are particularly taxing in Ontario, where home prices and mortgage balances went parabolic. The typical home jumped more than 70 percent to a peak of $1,070,400 in early 2022, while the average new mortgage balance in Ontario was $434,744 at the end of 2024, 26% higher than the national average of $344,928.

Although home prices have been declining since 2022, the typical Ontario home is still 40% more expensive than in early 2020. Unsurprisingly, new for-sale listings are dramatically outpacing home sales, and more homeowners are falling behind on their payments. See Mortgage defaults climb in Ontario as homeowners face renewal at higher rates:

Equifax found that homeowners with more than 11,000 mortgages in Ontario recorded a missed payment in the fourth quarter, foreshadowing an increase in the 90-day delinquency rate this year. The credit reporting agency said mortgage holders who are falling behind in their payments also carry large mortgage balances.

Many poor financial choices were made during the ultra-low interest rate era. The legacy is particularly costly in Canada because housing mania diverted critical investment away from productive assets and innovation into increasingly expensive shelters (non-residential investment as a percentage of GDP for Canada is shown below in black since 2002 versus America in yellow).

Canada’s economy is now particularly vulnerable as the housing bust mean-reverts the ‘wealth effect’ (they always do), and we have fewer income-generating businesses and technologies to help lower costs and pay back what we borrowed. Canada has a lot of work to do to rebuild strength and resilience. Admitting mistakes is a first step to recovery.

Danielle DiMartino Booth, CEO of QI Research, discusses the release of the latest Fed minutes, and what’s next for monetary policy in light of an ongoing trade war. Here is a direct video link.

Despite snow banks and cold temps in much of Canada, property owners are getting a jump on what they hope will be strong spring demand.

New property listings leapt 11% nationwide from December to January, the largest monthly increase in almost two years.

The supply influx boosted the inventory of homes for sale in Canada to its highest level since the onset of the pandemic. But so far, it’s failed to attract the desired jump in home sales—the number of transactions dipped in the past two months, including a 3.3% decline in January.

Canada’s annual sales-to-new listings ratio is shown below since 2004. When this ratio dips below .40, market conditions favour buyers over sellers. A full-on buyer’s market has not been seen nationally since this ratio fell to .36 in November 2008. See RBC, Canadian Buyers unfazed by sellers’ early jump into the housing market.

Under the hood, the sales to new listings ratio varies significantly by metropolitan area (shown below). Toronto and Vancouver, at .33 and .37, respectively, were weaker in January than during the 2008-09 recession. In Edmonton, Calgary, and Montreal, supply/demand weightings still favour sellers.

In the first 18 days of February, the sales-to-new listing ratio in Toronto was .31, lower than in 2009 (shown below since 2006). Anyone looking to buy in areas with low sales-to-new listing ratios should not be afraid to make lowball offers and be patient as sellers become more realistic, aka ‘motivated.’In the 2008 global recession, Canada fared better than most countries because it entered the downturn with relatively less inflated home prices and lower levels of household debt.

Unfortunately, what were tailwinds then have reversed into headwinds for Canada in 2025 (Canada’s household debt to GDP shown below since 2005).

The unnatural jump in Canada’s residential property prices from 2008-2022 is shown below (chart since 1970). Previous (lesser) overshoots have been corrected via sharp drops/years of flat prices. This time is unlikely to be different.

Canadians need a new national obsession and investment focus outside counter-productive housing speculation. It’s time to invest in innovation and productivity enhancements that lower costs and improve life quality. MCGA (make Canada great again)?