As global economic uncertainty grows, will buyers stay on the sidelines?
Five-year Government of Canada bond yields were on the rise again on Wednesday, ticking higher as global financial markets continued to digest the uncertainty of the conflict in the Middle East and rising oil prices.
With little clarity on when that war might wind down, escalating tensions have stoked fear of a further sharp climb in the cost of oil and a potential inflation spike in the weeks ahead.
For Canada’s economy, that global turmoil is bad news – and the question for mortgage market watchers is whether it could also spill over into the housing outlook.
Several key markets have remained in a deep slump in the opening months of the year, with home sales muted and prices continuing to slip.
And the latest bout of global chaos launched by US president Donald Trump’s decision to attack Iran at the end of February means more of the unease that arrived alongside his tariff wave last year.
“This has been a tougher winter so things are a little quieter [for the housing market],” Dwight Trafford (pictured top) of Rock Capital Mortgage in Orangeville told Canadian Mortgage Professional. “Now, add that to the uncertainty of having what seems to be a volatile neighbour south of the border that’s in the news every day.
“When they get a cold, we get pneumonia. It seemed like our market was going to recover last year and then tariffs; then things seemed to calm down, and then wars. First you’ve got Venezuela, now you’ve got Iran, and they’re rattling the sabres against Cuba. It just seems like there’s nothing to help calm our market.”
‘I see the doors are opening. I just don’t see people walking through them’
The more positive news is that Canada’s domestic politics aren’t as chaotic as the US, Trafford said – and he also sees a better housing affordability picture than some describe, particularly with prices having fallen significantly over the past two years.
Still, the recent US-Iran flareup hasn’t instilled much hope of a smoother ride for the economy as winter draws to a close and the mortgage industry gears up for spring.
That means while many markets have swung firmly in homebuyers’ favour and prices are still on the wane, Canadians who were sitting on the fence aren’t likely to see much cause to change their stance – although others determined to push ahead with a purchase are finding it a good time to buy.
“I see the doors are opening. I just don’t see people walking through them,” Trafford said. “People that have to move will move. People that have to sell will sell. People that have to buy will buy. And right now, they’re getting a much better deal than they would have four years ago.”
Canadians coping with strain, but need certainty on economy
Amid the lingering uncertainty, there’s another bright spot: while mortgage arrears are on the rise, they remain low by historical standards and Trafford said evidence on the ground suggests homeowners are managing the challenge of handling higher payments when their mortgage comes up for renewal.
That’s despite a wave of speculation in the leadup to 2025 and 2026 that the mortgage market could come under immediate strain from renewal difficulties.
“Arrears in Canada are traditionally extremely low. So people do make their payments and people do get by and they adjust,” Trafford said.
“When rates went from 2% to 5% there was a panic that lasted about three days and then as soon as they realized rates were then 4%, they said, ‘Well, can I get 3.99%? That’s a good deal.’ Canadians do adjust pretty quickly.”
The challenge for the market lies not in renewal strain, according to Trafford, but the fact that nobody knows where the global economy will land if the war in Iran stretches on without any sign of a resolution.
The cost of everything could be about to get a lot higher if that happens, he warned. “What [Canadians] can’t adjust to and what they can’t handle is just this overarching uncertainty,” he said.
“Oil prices are going to go up for sure and if they stay up for a long time, we know that that’s going to cause inflation because transportation goes up, heating costs go up, the price of moving furniture from Quebec to Toronto goes up.
“So we hope that this is a short-term thing but it could end up being long-term which will drive up inflation, which could affect interest rates. I think people are nervous and so they should be. What we need is about six months of calm.”
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