11 January 2019

When it comes to the national economy, more Canadians seem to be losing faith in it. Only 60% feel good about the economic potential for this year – it’s 5% lower than in 2017, but 2% higher than in 2016.

The deal is they may be right, based on the latest economic data we see, including slowing housing markets all over Canada.

There are many signs of economic challenges for the global and Canadian economies ahead.

Another one is the central bank’s decision to keep its overnight rate unchanged due to growing economic uncertainty, especially decreasing oil prices, moderating global expansion and a slowing Canadian real estate market.

The Bank of Canada says there is good news for this year as well – the unemployment rate is at a 40-year low level now. In addition to it, the economy runs almost at full capacity, and trade improvements are expected.

However, it was the first time the BoC admitted that a housing market slowdown is stronger than predicted.

“Weaker-than-expected real estate activity, seen during the recent months, shows that the impact of stricter mortgage rules and rate increases is stronger than anticipated,” – the report says.

Moreover, Victor Dodig, CEO of CIBC, noted that Canada’s mortgage growth may be negative in 2019.

“It all depends on the direction the housing market will choose under the influence of other macroeconomic factors,” – he said. “In my opinion, we may see flat or low single-digit growth in this sector in the nearest future”.

The good news for mortgage holders is that the odds of more rate hikes this year have declined sharply. Only a few months ago, markets predicted 2-3 rate increases in 2019, but now they expect one or none at all.

It’s great forecast for those who have chosen variable rates. Meanwhile, if you’re thinking about a fixed one, you may also expect a decline over the next few weeks, caused by the recent sharp decrease in 5-year bond yields, which affect fixed mortgage rates.