With a recent surprise drop in inflation in Canada to 2.7%, the financial landscape is poised for some significant changes. Experts anticipate that this drop in inflation will result in another minimum 0.25% decrease in the PRIME interest rate on the Policy Rate Announcement date of July 24th. While this reduction typically suggests improved mortgage affordability and potentially rising house prices and sales, the current real estate market faces unique challenges.
Interest Rates and Mortgage Affordability
The decrease in inflation and the expected drop in interest rates generally bode well for the real estate market. Lower interest rates often translate to more affordable mortgages, both in terms of qualifying for loans and managing monthly cash flows. This usually leads to increased demand for homes, higher prices, and more robust sales activity.
However, the Canadian housing market today is not typical.
The Impact of Maturing Mortgages
A significant factor influencing the current market is the sheer volume of maturing mortgages. Between 2024 and 2025, around 45% of Canadian mortgages—representing approximately 2.2 million mortgages—are set to mature. Despite the decline in interest rates from their multi-decade highs, the rates are still notably higher than those many of these mortgages were initially locked in at.
As these mortgages mature, homeowners will face new interest rates for refinancing, which, despite being lower than recent peaks, will still be higher than their original rates. This scenario could strain household budgets and affect mortgage affordability, despite the anticipated interest rate cut.
Mitigating the Impact with Amortization
Reamortization offers a viable solution to counteract the financial strain of higher interest rates on maturing mortgages. By extending the amortization period, homeowners can reduce their monthly payments, making the transition to higher rates more manageable. This strategy may prevent a surge in property sales due to financial distress, which could otherwise flood the market and dampen the positive effects of lower interest rates.
The Influence of an Aging Population
Another critical factor is Canada’s aging population. With many Baby Boomers moving into retirement, there is an increasing trend of individuals downsizing or opting to rent. This shift could lead to a rise in housing inventory, adding another layer of complexity to the market dynamics.
Balancing Supply and Demand
Ontario has long experienced a supply-demand imbalance in its housing market. An increase in inventory due to maturing mortgages and the downsizing trend among retirees could help balance this equation. However, these factors must be carefully considered as they may counteract the usual market boost expected from easing interest rates.
Strategic Real Estate Decisions
Whether you’re a first-time homebuyer, an investor, or looking to downsize, navigating the current real estate market requires careful consideration of these unique factors. With the right strategies and guidance, you can make informed decisions that align with your financial goals.
At Harmer Wealth Management and The Harmer Group, we have our finger on the pulse of the real estate market and the broader economy. Our team is dedicated to helping you navigate these complex waters with confidence and ease. Contact us today to see how we can assist you in achieving your real estate and financial objectives.
–Chad Harmer