Last week's slew of Canadian housing data saw prior trends extend into March, said Taylor Schleich and Daren King over at National Bank of Canada, in a note dated April 22.
"Housing activity remains low and technically inched down further, while home prices continue to slowly but steadily slide. Subdued activity is also reflected in mortgage credit trends," it added.
While the Canadian mortgage stock is expanding, it's doing so at a slower-than-normal pace, despite the nearly 300 bps of the Bank of Canada policy rate cuts delivered over the last two years, National Bank said. Canada's economy is "notoriously" rate sensitive, but housing demand has been "surprisingly and uncharacteristically unresponsive", it added.
BoC Governor Tiff Macklem has said that the policy rate at 2.25% is "providing some stimulus" but it appears that "some" is overstating the actual degree of support, at least in housing, noted the bank.
For the new mortgage activity that is taking place, Canadians continued to pile into variable rate products through February, National Bank said. The once-dominant five-year fixed rate mortgage remains unpopular as households that do opt for fixed prefer a shorter term, it noted. "This strategy, it seems, is driven by slightly lower three-year rates and a hope that borrowing costs will eventually come back down to pre-COVID levels," said National Bank, before adding "we wouldn't hold our breath".
While markets are now pricing in the risk of 2026 hikes, it isn't clear that recent behavior will shift, said National Bank. Higher fixed rates, via higher Government of Canada (GoC) bond yields, make variable an even more attractive option and should also keep households from locking in for longer, such as five years, added the bank. "That should mean relatively more paying pressure on three-year swaps this spring."
With ongoing sluggishness, the Canadian Real Estate Association revised down its projections for housing activity and prices last week, National Bank noted, before saying: "This isn't a new trend, as CREA has been forced to pare back expectations for much of the past five years."
"Overall, a renewed bout of inflation leaves risks skewed toward rate hikes, but real economic data, including in the housing market, continues to lean against tighter monetary policy," according to National Bank.