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Canadian real estate is like a game of Jenga and low interest rates are a key block. That block is being pulled out once again.

Canada’s five-year bond yield, which drives fixed mortgage rates, reached another 16-year high on Thursday. Average five-year fixed mortgage rates are now at 15-year highs.

What’s more, the rates that borrowers must prove they can afford (known as mortgage qualifying rates) just hit a 27-year high. Keep in mind that today’s mortgage applicants have gobs more debt than folks did 27 years ago – making it even harder to get a mortgage.

This week’s lowest fixed and variable mortgage rates in Canada

Meanwhile, a bead of sweat is forming on the brows of Bank of Canada policy makers. They see overall inflation turning back up, core inflation at risk of getting stuck in the mid-3-per-cent range, unemployment still low at 5.5 per cent, and surprising signs of growth from our biggest trading partner.

If people start to worry that inflation is heating up again, they do things that fuel even more inflation – buy sooner, pay more, ask for higher wages, etc.

The Bank of Canada simply cannot allow that to happen.

That’s why market expectations of another Bank of Canada rate hike may be too low.

Either way, real estate remains heavily dependent on buying power – i.e., how much borrowers can qualify for. The surge in mortgage rates, with or without another BoC hike, is decidedly housing-bearish.

Given CREA’s national average home price just dove 5.7 per cent in the month of July, it’s safe to say August could see another dip.

Most likely, the real estate market is going to topple over again. But it’ll be temporarily. Like at the end of a round of Jenga, the housing game will start over.

Why home prices aren’t in for a protracted bear market

Home prices are lofty for all kinds of reasons, the greatest of which is the imbalance between household formation and the supply of homes – especially in the country’s popular immigration hubs.

In a interview this week I spoke with new Housing Minister Sean Fraser. The takeaway was twofold:

One, he seems sincere in wanting to pull almost any reasonable lever to improve housing affordability for struggling Canadians.

Two, his government appears not willing – even temporarily – to pull the one non-rate lever that would improve housing affordability the most: slowing Canada’s flood of new permanent residents.

People can debate the pros and cons of high immigration but they can’t debate this: Incessant record-high immigration puts a floor under home values – a floor that didn’t exist in past bear housing markets. That includes the 1989 to 1998 downturn, when population growth fell and real (inflation-adjusted) home values ground 21 per cent lower.

Largely because of immigration policy, our real estate market may tumble as rates and/or unemployment climb (or God help us, both), but our nine-lives real estate market will come back from the dead in due course.

That could possibly happen in time for the spring market or it could take a few years. Much depends on how long and high rates go from here, how severe unemployment gets, whether our bank regulator drops any policy bombshells on the mortgage market, etc.

For now, prospective buyers who don’t need a home urgently are getting the heck out of the way. Homebuyers can put two and two together. They saw what happened to average prices from February, 2022, to last January – down 25 per cent in 11 months despite tight inventories and a million new Canadians – because of soaring rates. And they see interest rates going orbital.

The good news is, a healthy selloff gets us closer to mortgage-rate relief. It’s partly what the Bank of Canada needs to see to press the rate-pause button again. Why? Because housing strength has fuelled inflation via higher construction costs, more demand for things such as appliances and furniture, higher housing industry incomes, wealth effects, and so on.

Looking at this solely from the lens of borrowing costs, a housing downturn today will lead to lower mortgage rates tomorrow.

Rates were sourced from the Canadian Mortgage Rate Survey on Aug. 17, 2023. We include only providers who advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than a 20-per-cent down payment or switching a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1-million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.

Robert McLister is an interest rate analyst, mortgage strategist and editor of You can follow him on Twitter at @RobMcLister.

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