“The Bank of Canada is also likely to cut interest rates faster in a tariff scenario, providing some offset to the housing market,” TD wrote.
South of the border, the US housing market is facing similar pressures, with persistently high mortgage rates slowing momentum. Pending home sales and weekly mortgage applications have started to decline, with 30-year mortgage rates hovering around 7%, roughly 80 basis points higher than when the Federal Reserve began cutting rates in September.
TD Economics also noted that “lower mortgage rates in the spring and summer of last year delivered a late-year boost to residential investment,” but added that “the backup in bond yields is likely to slow the sector’s momentum in the near term.”
With 30-year mortgage rates hovering around 7%, housing affordability remains well below historical norms. “At these levels, the typical mortgage payment for an existing single-family home is close to $2,200 – more than double the pre-pandemic average,” TD Economics stated.
Despite a 23% rise in median family incomes since the pandemic, affordability remains stretched. TD Economics forecasts that while affordability is expected to improve somewhat over the next three years, it is still likely to remain below long-term averages.
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