Canada's housing market has remained broadly stable over the summer, with national conditions largely balanced, according to BMO Capital Markets.
Activity and prices are showing signs of stabilizing in the hardest-hit markets, but a muted recovery is expected given the lack of strong catalysts for a significant rebound, the bank said in a Tuesday note.
"Higher longer-term bond yields and, therefore, fixed mortgage rates will continue to dampen the recovery and push many buyers into variable rates," wrote BMO Senior Economist Robert Kavcic in the note.
Markets are pricing roughly 100 basis points of Bank of Canada tightening over the next year, which Kavcic considers "too aggressive."
Most of the benefit from lower mortgage rates appears to have already played out, limiting the scope for a meaningful housing rebound and keeping the recovery subdued, added BMO.