As the Bank of Canada continues to cut interest rates, housing activity has remained relatively weak. In July, existing home sales were below historical averages, with new listings slightly increasing. Prices have plateaued, and residential mortgage originations remain slow.

 Mortgage Trends: Mortgage balances grew by only 3% annually in Q2, marking the second slowest growth since 2000. This could signal a welcome dip in household debt-to-income ratios, as lower leverage reduces financial vulnerability.

Interest Rate Outlook: The Bank of Canada is expected to continue cutting the overnight policy rate into 2025. With the policy rate at 4.5%, still above the 2.5% inflation rate, we anticipate rates will continue to fall, possibly reaching 2.75%. Housing activity is likely to pick up gradually later this year as a result.

Homebuilding Resilience: Despite softness in the resale market, Canadian homebuilding remains robust. Housing starts surged in July, driven by multi-unit construction, although single-family starts have been historically weak. Capacity pressures, including worker shortages and zoning restrictions, have delayed housing completions, pushing the number of dwellings under construction to new record highs.

Labour Market: Canadian labour markets are easing, with job vacancy rates plunging and unemployment rising, particularly among young workers and new immigrants. Economic growth has slowed to around 1% this year and is expected to pick up only moderately next year.

Supply Chain Concerns: Canadian businesses are facing potential losses as more than 9,000 workers at Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. could go on strike or be locked out if no labour agreement is reached this week, disrupting supply chains.

Housing Market Recovery: As interest rates continue to decline this fall, we expect housing markets to begin their recovery.