Mortgages and Market Insights: Are we entering the next phase of the housing market?

After a quiet start to the year, something interesting has been happening.

Phone calls are increasing. More buyers are asking questions. Renewal conversations have picked up considerably. And while sales activity remains below historical averages, it feels like buyers are slowly beginning to step back into the market.

The question is:

Is this simply another false start, or are we beginning to see the early stages of a market recovery?

The answer will depend on something happening thousands of kilometers away.

Global events continue to shape Canadian mortgage rates

Over the past few weeks, global markets have once again reminded us how interconnected the world has become.

The conflict in the Middle East has pushed energy prices higher, while uncertainty surrounding future trade negotiations between Canada and the US continues to influence financial markets.

One area economists are watching particularly closely is the Strait of Hormuz.

Although it's a relatively narrow shipping route, nearly 20% of the world's oil supply passes through it.

Whenever that flow is disrupted, even temporarily it tends to ripple through the global economy.

Higher oil prices don't just affect what we pay at the gas station.

They influence transportation costs, manufacturing, food production, construction materials and ultimately inflation.

When inflation becomes more persistent, bond markets react quickly and mortgage rates often follow.

Fortunately, recent inflation data in Canada has remained encouraging, with headline inflation falling below 2% before the recent conflict began. The challenge now is determining whether higher energy prices become a short-term disruption or something more lasting.

A quick look at Canada’s economy

The Bank of Canada once again left its overnight lending rate unchanged at 2.25%, a decision that was widely expected. While inflation continues moving closer to target, the economy remains mixed.

Here's what stood out:

• Economic growth has slowed: Canada's GDP contracted by 0.6%, although consumer spending and government investment remained relatively resilient.

• The labour market remains soft: Unemployment has risen to 6.70%, and recent employment gains have largely disappeared.

• Inflation continues improving: Headline inflation eased to 1.80%, while core inflation measures continue trending toward the Bank's 2% target.

• Housing remains subdued: Demand remains cautious, but affordability has improved considerably compared to the past two years.

The Bank of Canada also acknowledged that it's simply too early to understand how the conflict in the Middle East will affect Canada's economy over the coming months.

Housing market update

Although headlines continue focusing on uncertainty, we are beginning to notice something encouraging. Activity has quietly started to improve.

Compared with late last year, we are seeing substantially more mortgage inquiries, pre-approvals and purchase conversations.

Inventory remains elevated in many markets, giving buyers considerably more choice and negotiating power than they've had in years.

Home prices have already corrected significantly.

Canadian home values are roughly 20% below their 2022 peak, and after adjusting for inflation, real home prices have fallen by nearly 30%.

That doesn't necessarily mean prices have reached their bottom.

Condo markets, in particular, may still face additional pressure.

But today's market is creating opportunities that simply haven't existed for several years.

Many buyers are finding:

• More inventory to choose from

• Less competition

• More motivated sellers

• Greater negotiating power

Rather than asking whether we have reached the absolute bottom, the better question may be:

Can you buy the right home at the right price for your long-term plans? 

For many buyers, that answer is increasingly becoming yes.

Rate outlook: what we are seeing now

Variable/adjustable rates:

The Bank of Canada continues to signal that interest rates are likely to remain steady for now.

Unless economic data weakens meaningfully, most economists no longer expect additional rate cuts this year.

• Short term: Rates likely remain unchanged.

• Medium term: Markets expect rates to remain relatively stable.

• Long term: Gradual increases remain the most likely outcome once inflation risks subside.

While oil prices have temporarily complicated the outlook, inflation and unemployment continue pointing toward a relatively balanced environment. For now, the most likely scenario remains a period of stability.

Fixed rates:

Fixed mortgage rates continue following the bond market and bonds have been anything but quiet.

Recent geopolitical events have pushed bond yields sharply higher before retreating again as markets digested new information.

Although short-term volatility is likely to continue, the broader trend still points toward modest increases over the coming years.

If current forecasts prove accurate, today's fixed rates could look attractive compared with where rates may be 12 months from now.

Fixed or variable/adjustable rate?

There's no universal answer.

For borrowers prioritizing lower monthly payments and maximum flexibility, a well-priced variable/adjustable mortgage can still make sense.

For those seeking certainty, particularly if purchasing or renewing this year, today's fixed rates continue to present a compelling opportunity.

Rather than trying to perfectly predict interest rates, the better strategy is choosing the mortgage that best aligns with your financial goals, future plans, and comfort level with changing payments.

Mortgage trends we are watching:

Several trends continue to stand out.

• Renewals are becoming more strategic

One of the biggest shifts we are seeing isn't necessarily in mortgage rates, it's how homeowners are approaching renewals. Some lenders are offering exceptionally competitive renewal packages to retain existing clients. Others aren't. That's why accepting the renewal offer without comparing options can be an expensive decision.

More importantly, today's renewal conversations are about much more than rate alone.

They are an opportunity to review:

• payment flexibility

• cash flow

• prepayment options

• future borrowing needs

• long-term financial goals

Sometimes staying exactly where you are is the best decision. Sometimes a different lender or a different mortgage structure creates significantly more value. The key is knowing your options before making a decision.

• More homeowners are planning earlier

We are also seeing a noticeable increase in homeowners reviewing their mortgage one to two years before renewal.

With rates expected to gradually move higher over time, many clients are exploring whether securing a rate hold or refinancing early could provide meaningful savings and greater certainty.

Planning early doesn't mean making a change today.

It simply means understanding your options before the market changes again.

• Reverse mortgages continue evolving

Reverse mortgages continue growing by roughly 25–30% annually.

Increasingly, they are being used not as a last resort, but as part of broader retirement, estate, and cash-flow planning strategies.

To find out more about “Unlocking home equity: understanding a reverse mortgage” click on the link about a recent article I wrote https://www.financingpros.ca/post/unlocking-home-equity-understanding-a-reverse-mortgage

• Private lending remains selective

Private lenders continue tightening their lending criteria, particularly for land financing and certain condominium developments.

Looking ahead

Markets rarely move in straight lines. They pause. They react. They surprise us.

Right now, we are in one of those periods where several important pieces are shifting at once.

• Interest rates appear close to stabilizing.

• Housing affordability has improved.

• Buyers have more negotiating power.

• Renewals are becoming increasingly strategic.

• And opportunities are beginning to emerge for those who prepare early.

Rather than trying to predict every market move, the goal is to make informed decisions based on your own financial goals and circumstances.

A simple next step

If your mortgage is renewing within the next two years, you are thinking about buying, or you simply want a second opinion on your current financing, I would be happy to help.

A quick, no-obligation review can help you understand:

• Whether your current mortgage is still the right fit

• Potential savings opportunities

• Renewal and refinancing strategies

• Fixed versus variable/adjustable options

• Whether acting early could benefit you

Sometimes the best advice is to stay exactly where you are.

Other times, a small adjustment today can create meaningful savings and flexibility over the years ahead.