Bank of America upgrades Big Six banks and sees a housing market rebound, but says lenders must reduce reliance on mortgage-driven expansion
Bank of America sees signs that Canada’s housing market may be poised for a rebound, especially if recent trade tensions ease and consumer confidence returns.
BofA analyst Ebrahim Poonawala pointed to rising optimism around Canada’s macroeconomic trajectory and policy developments that could unlock business activity and encourage buyers to re-enter the market.
“Resolution of the US trade war could drive increased confidence in the overall economy, getting Canadian consumers off the sidelines and accelerating mortgage demand,” Poonawala wrote in a recent investor note.
The bank is showing renewed confidence in Canada’s largest financial institutions, citing economic resilience and supportive government policies as reasons to raise price targets across the board. But while the outlook may be brightening for the Big Six, questions remain about how that optimism will filter down to consumers and whether it will influence the Bank of Canada’s interest rate timeline.
Poonawala raised price targets for all six banks, calling their valuations “not expensive” and noting momentum for earnings revisions.
Royal Bank of Canada received the largest upward adjustment, with its target lifted from $194 to $214. The firm also highlighted CIBC, TD, and National Bank as offering particularly strong risk-reward profiles, based on domestic rebound potential, strategic updates, and recent M&A activity.
Earlier in April, Fitch Ratings released a report, flagging elevated credit risk as a result of escalating US-Canada trade tensions. Fitch expects the US effective tariff rate on Canadian imports to surge to 15% by 2025, with Canada expected to retaliate, adding the possibility of a drawn-out trade conflict.
GDP contracted by 0.1% in April. While that decline was modest, it adds uncertainty to the Bank of Canada’s next move.
“We suspect that the underlying softness in growth and employment will eventually pave the way for additional rate relief,” said Bank of Montreal chief economist Doug Porter. “However, the stickiness of core inflation remains a big hurdle for near-term rate cuts; we still have exactly one month of data before the next decision.”
Read more: Canada's economy softens further – but BoC still faces big dilemma on rate cuts
BofA economists, on the other hand, expect GDP to grow by 1.4% in 2025, up from a previous 1% forecast. Poonawala credited Ottawa’s recent infrastructure push and dismantling of interprovincial trade barriers as positive signs of policy-driven growth.
“The recent Senate approval to fast-track infrastructure projects and the elimination of some interprovincial trade barriers indicate a sense of urgency,” he noted.
However, Fitch still observed rising impairments in unsecured retail and commercial lending and warned of uneven credit trends in the quarters ahead.
Mortgage impairments remain low, though Fitch cautioned that a more severe downturn could shift that trajectory.
“Although not our base case, a prolonged or deeper recession would lead to higher mortgage impairments that would take longer to resolve, especially if accompanied by a housing market downturn,” the agency said.
With the housing boom potentially behind them, lenders may need to reduce their reliance on mortgage products and offerings geared toward recent immigrants, according to BofA.
Canada’s big banks will need to will need to depend less on mortgages and products that are “new to Canada centric,” Poonawala said, and more on government policy tied to innovation and infrastructure for long-term growth.
Much attention will also focus on the Bank of Canada's path ahead on interest rates, with cuts expected in the coming months. The central bank is scheduled to make its next decision on its benchmark rate at the end of July.
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