Today brought a mix of economic data and updates that could shape the future of mortgage rates in Canada. Let’s dive into how these developments, alongside some new government mortgage rule changes, may impact your financial plans.

Good News: Inflation in Canada is Cooling

Canada’s inflation rate dropped to 2.0% in August, the lowest level we’ve seen since February 2021, beating market expectations. With inflation stabilizing, this news sets the stage for potential rate cuts from the Bank of Canada. To give some perspective, pre-pandemic inflation was higher, yet the prime rate stood at 3.95%. This improvement could signal relief for mortgage holders as interest rates may decrease further in the near future.

US Retail Sales Beat Expectations

Meanwhile, U.S. retail sales rose by 0.1% in August—small but above expectations. Given that consumer spending drives nearly 70% of the U.S. economy, this stronger-than-expected data could influence the Federal Reserve’s interest rate decision. While the market had anticipated a 50 bps rate cut, this news might push the Fed towards a more conservative 25 bps cut. Any Fed rate cuts could positively impact Canadian bond yields, making mortgage rates more affordable in Canada.

New Mortgage Rules: Greater Flexibility for First-Time Buyers

In addition to economic factors, the Trudeau government has introduced some significant mortgage rule changes that could improve housing affordability, particularly for first-time buyers:

• 30-year mortgages: Starting in December 2024, first-time buyers will be able to secure 30-year mortgages for newly built homes, extending amortization periods and lowering monthly payments.
• Higher home price cap: Mortgage default insurance will now be available for homes worth up to $1.5 million, a jump from the previous cap of $1 million. This change will enable buyers with less than 20% down payments to bid on more expensive properties.

These changes are expected to increase homebuying opportunities for first-time buyers and help new homebuilders, potentially easing affordability challenges in major cities.

Housing Starts Down in Canada

On the housing front, Canadian housing starts fell sharply in August to 217.4K, down from 279.8K in July. This decline in new builds could signal fewer homes entering the market, potentially slowing down housing inventory growth. However, lower housing starts might also help stabilize home prices in the coming months, which is good news for buyers waiting for the right time to enter the market.

Bond Yield Update

Canadian and U.S. bond yields—a key indicator for fixed-rate mortgages—are trending lower. The 5-year Canadian government bond yield is down to 2.677%, and the U.S. 10-year Treasury yield is sitting at 3.633%. If these bond yields continue to decrease, we could see fixed mortgage rates drop, offering homeowners more favorable refinancing opportunities.

Bottom Line

Between Canada’s cooling inflation, evolving mortgage rules, and shifting economic data, homeowners and buyers are navigating a complex but potentially positive landscape. The new mortgage rules will make it easier for first-time buyers to enter the market, while the potential for further rate cuts might reduce monthly mortgage payments for many Canadians. Stay tuned as these changes unfold and keep an eye on the Bank of Canada’s next moves!