This is an article from Yahoo Finance Canada, I am simply copying and pasting for your information. I will have no input or opinions at this time on what happens tomorrow, with the expected rate cuts.
Story by John MacFarlane
A series of five consecutive Bank of Canada (BoC) interest rate cuts through 2024 has offered some relief to mortgage holders and at least a flicker of movement in the housing market, but U.S. President Donald Trump’s tariff threat might blunt the effects of another rate reduction on household budgets.
A cut Wednesday is likely to be “greatly overshadowed” by a possible Canada–U.S. trade war, says Justin Herlick, CEO and co-founder of Pine, a digital mortgage and real estate platform.
In December, BoC governor Tiff Macklem characterized the potential tariffs as "a major new uncertainty.” The Bank’s path forward after Wednesday’s announcement — and the future of its overnight rate and consequent lending rates for consumers — is far from clear, dependent on factors including the scope of U.S. tariffs (if any), the extent of a Canadian retaliation, and the timeframe.
“Let's say they impose these large tariffs and the Canadian government responds, as they have communicated, with counter tariffs,” Herlick said in an interview with Yahoo Finance Canada. “That's going to be largely inflationary, right? And if it's largely inflationary, then the Bank of Canada won't be able to cut as per its plan, which will leave mortgage rates higher.”
The price increases associated with a trade war, however, would “almost certainly come alongside a sharp rise in the unemployment rate,” Desjardins Group economist Royce Mendes wrote in a note on Monday, “driving home the need to ease rather than tighten financial conditions. Rates might ultimately come down, but in the context of a wounded economy."
“There are just many unknowns right now,” said Clay Jarvis, a real estate expert at Nerdwallet Canada. “And I think because they're unprecedented, something like a trade war with the U.S., a lot of home buyers haven't lived through something like that. And we haven't really seen an unleashed Donald Trump and what he could do to the Canadian economy.”
With that said, ongoing evidence of Canadians’ cost-of-living struggles, in the form of data on loan payments and credit risk, suggests consumers are likely to remain hesitant even without a tariff threat, Jarvis tells Yahoo Finance Canada.
“If people are missing their car payments or falling behind on their credit cards, I question whether those people are ready to take on a multi-hundred-thousand-dollar mortgage,” he said. “I don't think a minimal cut from the Bank of Canada is really going to change the game for anybody. It might still have that little bit of psychological value or ‘Hey, rates are coming down, things feel good.’ But in terms of affordability and making things easier for buyers in that regard, I don't think a minimal cut to variable rates is going to do much for them.”
The five consecutive cuts from Canada's central bank since June 2024 have reduced the policy rate from five per cent to 3.25 per cent. Those cuts have reduced monthly payments on a $600,000 variable-rate mortgage by about $630. A cut Wednesday would trim around $90 more from the monthly payment.
Both Jarvis and Herlick say competition among lenders is high right now, meaning anyone looking to buy a home or renew should shop around. “If you just take blatantly your blind offer from your existing mortgage lender, you are likely getting a significantly worse offer than what's out there,” Herlick said.
If the BoC’s rates continue to drop, Herlick adds, it could even create a situation where someone who renewed last year might be better off breaking that mortgage and paying the penalty. “Normally, it's not really worth it to break a fixed mortgage mid-term,” he said. “However, given how high rates were about seven months ago, and where they're going into, it could actually make sense.”
Fixed-rate mortgages, which are priced in line with the bond market rather than central bank rates, haven’t moved much in recent months, and have “already adjusted” for the expected Wednesday cut, Herlick says. “So with this one, you're not going to get a lot of relief on fixed-rate mortgages.”
Two-thirds of Pine’s business is made up of people looking at variable-rate mortgages, Herlick adds, which stands out against a historical preference in Canada for fixed-rate loans.
“So we're in a time where people are trying to anticipate a cut environment," he said. “I wouldn't say we're feeling direct nervousness of the trade implications, but what we are and have been feeling for over a year now is just people who are very worried about their household expenses, as they have to adjust to the new reality of where interest rates are now.”
Even the emergence of a tariff fight with the U.S. wouldn’t necessarily crush the housing market, Jarvis says. “Canadians are really driven by FOMO when it comes to housing,” he said. "If economic conditions emerge that lead to interest rates dropping substantially further, people would likely buy in spite of the situation."
“If it became cheap to buy a house, people would do it,” he said.
“I mean, we saw it during the pandemic. We were in the middle of a recession and a completely unprecedented pandemic that nobody's ever dealt with, but still we'll go out and buy a million-dollar house.”
You can find the full article here: What a sixth Bank of Canada interest rate cut could mean for mortgages as tariffs loom
Chris
