'Rates fall below neutral levels and there is business to be done and opportunities to capture'

Earlier this month, Prime Minister Justin Trudeau made the decision to resign from office – and while the news wasn’t wholly unexpected it has spurred some economic uncertainty. Prior to his resignation, Trudeau's approval rating had fallen to approximately 20%, with the Liberal Party's support plummeting to a historic low of 16%, according to Political Pulse. Global News also reported that 68% of Canadians indicated they believe the PM should step down.
In economic terms the Bank of Canada recently cut interest rates to 3.25%, helping to ease inflation in the hopes of economic growth going into 2025. Now, however, in an era of instability, this could delay recovery – potentially postponing investments and business ventures.
And the same goes for the mortgage market. In the property world, brokers are waiting with baited breath to see just how the next few months will play out. With US President-elect Donald Trump making japes about Canada becoming the “51st state” and referencing new import taxes, how exactly will this trickle down to impact the housing sector?
“With Trump continually bashing Trudeau on social media, I think his departure is good news for incoming threats of tariffs,” said Matthew O’Neil, mortgage broker at Axiom Mortgage Solutions. “Overall, I think people are sick of a weak economy, deficit spending and continued bad press. Political news and commentary has been very negative for the last 18 months. Any change will be good for consumer confidence as a whole, especially in the millennial category as our age group has shifted to a largely conservative (projected) vote in the next election.”
The Conference Board of Canada's Index of Consumer Confidence fell by 10 points to 60.0 (2014=100) in December 2024, marking the largest decrease in a year. This decline followed a previous drop in November, indicating a significant downturn after several months of improvement. What’s more, the Bank of Canada's surveys indicated that consumers remained uncertain about the economic outlook, with high inflation and interest rates impacting household budgets and spending decisions. But is the tide set to change? Well, it’s not looking likely in the short-term.
“Trudeau’s resignation, and the election of a new Liberal Party leader, will create uncertainty and likely delay an election until the Spring,” Rene Quercia, senior vice president, broker channel at HomeEquity Bank, told CMP. “The challenge is with Trump taking office on January 20, this will make Canada vulnerable and perhaps unprepared to respond to counter any economic challenges the US may impose.”
‘A lame duck government means inaction’
The economic challenges here could include Trump’s avowed 25% tariff on all products coming into the United States from Mexico and Canada. And while this doesn’t have a direct impact on mortgages specifically, any additional burden on the Canadian economy inevitably worms its way into the housing market. Ryan La Haye, president at Groupe RLH, believes that it’s really too soon to tell in the short-term how this will impact the housing market – however, with Trump heading towards The White House it’s not necessarily a totally positive outlook.
“A lame duck government means inaction or the inability to govern effectively. With the Trump administration entering this month that’s probably not a good thing,” La Haye said. “Trump’s reaction on X to Trudeau’s resignation reiterated that tariffs are coming and so from that perspective a Canadian recession is all but imminent. Would it have made a difference if he stayed? Probably not. He should have resigned months ago and allowed for a more timely leadership race. Ironically recessions have been in some sense good for the mortgage industry if you’re a broker. Rates fall below neutral levels and there is business to be done and opportunities to capture.”
However, La Haye believes that if brokers look more to the longer term impact, this could potentially increase the acceleration of the divergence of the US and Canadian economies – leading to potential stagflation.
“If the US tariffs are implemented and the BoC continues its current path, this will slow the Canadian economy and at the same time our currency will be weaker versus the US dollar,” La Haye said. ”Depending on the severity of the recession, this may outweigh the opportunities that lower rates bring our industry.”
‘We’ve been in a buyers’ market for quite some time’
So, what does this mean for mortgage rates and potential new buyers in the months to come? Currently, fixed mortgage rates are linked to the Govt of Canada bond rates. As such, if uncertainty in the political arena continues throughout 2025, this may cause GoC bond yields to rise. And this, as Quercia told CMP, will impact fixed rates in the mortgage market,
“While [the] prime rate may continue to drop as Bank of Canada brings inflation under control, it means variable-rate mortgages and revolving HELOCs may become the preference for consumers,” Quercia said. “[And], with uncertainty in the political leadership and governing of Canada, there may be little attention given to affordable housing or economic stimuli that could boost residential home sales or help first time homebuyers.
“The trend of downpayment gifting from parents to their first-time homebuying children will likely continue to grow as affordability is a real issue. The condo markets in GTA and GVA will continue to suffer as property values have dropped and buy/sell activity in single residential homes could remain at low levels.
“We’ve been in a buyers’ market for quite some time and I don’t see this changing dramatically in 2025 in the face of political uncertainty in Canada.”