Challenges continue to mount for Canada’s housing market. In September, major housing markets saw a slowdown in sales due to an increase in property listings and decreased demand. Adding to the pressure, global bond market fluctuations have caused a rise in mortgage rates.

Stephen Brown, Deputy Chief North America Economist for Capital Economics, emphasized the impact of rising Canadian government bond yields. Recently, these yields reached levels not seen since the financial crisis. Brown noted that this could significantly affect the housing market. For instance, five-year bond yields rose to 4.4%, potentially pushing the lowest available five-year fixed mortgage rate to 6.25%, a 150-basis point increase since April. This surge translates to a 13% hit to affordability.

Capital Economics initially forecasted a stagnation in housing prices for the next six months. However, with the recent developments, they now anticipate a potential decline in prices. Toronto-Dominion Bank economists also adjusted their outlook, foreseeing a more pronounced and extended housing market downturn due to rising bond yields. They predict a decline in both home sales and prices in the last quarter of this year and into 2024. By the first quarter of 2024, they expect an 8% decrease in sales and a 6% decrease in prices compared to the second quarter of 2023.

While a recent surge in job numbers may not singularly trigger a Bank of Canada interest rate hike, it has bolstered the case for one. The economy added 64,000 jobs in September, three times more than anticipated. However, experts suggest that further data, including housing and retail sales, will influence the Bank of Canada’s rate decision. Economists anticipate a slow housing market recovery, with Canadian home sales potentially surpassing pre-pandemic levels by 2025.