A BoC Rate Cut Wouldn't Cure Canada's Housing Paralysis

The Bank of Canada’s decision to hold its overnight rate at 2.75% today wasn’t made with the housing market in mind. That’s fine. The Bank has far larger fish to fry — and a shark circling its economy.

April’s inflation report was a gut-punch — a 2.9% annual increase in CPI, not including energy — that laid the groundwork for today’s rate hold. The BoC might eventually cut rates to offset the ongoing effects of Donald Trump’s chaotic trade war and tamp down a near-7% unemployment rate. But it can’t reduce rates when inflation indicators are flashing a retina-searing red.

A rate cut today would have benefited a particular subset of home buyers: those ready to act who are eyeing a variable-rate mortgage. But how many of those buyers are there?

So many barriers stand between the average Canadian and home ownership. A rate cut might have lowered one of them by a few inches, but these others aren’t going anywhere.

Debt struggles: A growing obstacle to homeownership

Recent data from Equifax tells a rather horrifying story, the plot of which focuses on Canadians’ growing inability to manage their debts.

In the first quarter of 2025, 1.4 million consumers missed at least one credit payment, pushing the non-mortgage delinquency rate 8.9% higher compared to a year ago. The biggest increases were seen in Ontario, Canada’s biggest housing market, and among consumers aged 18-25, the next generation of homeowners.

At the end of Q1, Canadians were carrying an average non-mortgage debt load of $21,859, according to Equifax.

Missed payments and high debt service ratios send up red flags for lenders, especially the tightly regulated Big Six. Borrowers with credit challenges can always turn to alternative lenders, but will they be able to afford the higher mortgage rates or down payment requirements, which often start at 20%?

The underlying issue

When surveyed for NerdWallet’s 2025 Canadian Home Buyer Report, respondents didn’t cite high mortgage rates, down payment savings or the current economic climate as the primary obstacle preventing them from buying a home.

Instead, both homeowners and non-homeowners cited the high cost of living as the most significant obstacle.

And it’s climbing even higher. Here’s how inflation’s been trending over past few months once you strip out volatile energy costs:

December 2024: 1.9%.
January 2025: 1.7%.
February 2025: 2.6%.
March 2025: 2.5%.
April 2025: 2.9%.

Canada’s retaliatory tariffs on billions of dollars worth of U.S. goods are still in place, which likely means even higher prices in the next few months. If the cost of living is keeping home buyers on the sidelines now, they could be up in the nosebleeds by the fall.

And if prospective home buyers have to rely on overused credit products to cover day-to-day expenses, their mortgage financing options will not improve.

Mr. President

The Canadian economy has so far survived the U.S. trade offensive. What seemed like a catastrophe has been more of an exhausting annoyance, as Trump’s on again/off again tariffs have resulted in more confusion than carnage.

But Trump’s unpredictability still hangs over the Canadian housing market. (Trump announced a new round of tariffs on steel imports into the U.S. moments after the previous sentence was typed out.) His whims have roiled stock and bond markets, and tariff pauses currently in place might end at any time — for any reason — and target any number of Canadian employers.

That uncertainty is impacting Canadians’ financial plans. A CTV/Nanos poll found that 21% of Canadians have delayed or cancelled a major purchase due to Trump’s tariffs. Chaos is not conducive to taking on a mortgage.

The irony of it all

In a sad twist of fate, all of these economic downers have helped create some of the least competitive, most buyer-friendly market conditions in recent memory.

In April, active listings — the properties still for sale at the end of the month — rose to over 27,000 in the Greater Toronto Area, 54% higher than in April 2024. Active listings in Greater Vancouver were up almost 30% year-over-year, while in Calgary they more than doubled.

All those properties sitting on the MLS would normally give buyers an increased amount of choice and negotiating power. But that’s only if they can get approved for mortgages they can afford.

That’s something the Bank of Canada can’t help with — not right now anyway. If it ultimately knocks another 75 basis points off the overnight rate, and variable mortgage rates dip down around 3.25%, affordability will improve.

Whether Canadians will be able to take advantage by then is a much harder call.