Who wants to talk economics?

A lot of people, apparently!

When I look back at previous iterations of this blog topic, they’re surprisingly high-performing, with among the highest number of TRB reader comments in that particular year.

Maybe these economics posts are a bit of a break from all the real estate talk?

Then again, this is a real estate blog.  And how could anybody ever get tired of my political opinions?

We just had a long weekend in Toronto, so hopefully everybody is rested, relaxed, and recharged.

But here’s the thing: you’re reading this blog post right now; you have to come to terms with a harsh reality.

You’re a nerd.

Don’t worry, I am too.  I’m probably a bigger nerd than you are!

But come on, if the shoe fits, wear it.  Right?

You’re coming off a long weekend, and you didn’t want to ride that high?  You could be sitting at your office computer doing some good, old-fashioned online gambling, which is so hot right now!  You could be doom-scrolling on YouTube and letting your algorithm tell you what to watch.  Hell, you could be outside vaping, or maybe something even cooler!

Yet here you are, about to dive into a conversation about interest rates, unemployment, inflation, gas prices, bond yields, mortgage terms, housing starts, and God only knows what other economic data that would interest 99.9% of the population under twenty-five years old.

So welcome to nerd-hood!  Climb aboard the bus because I’m driving.

About once every quarter here on Toronto Realty Blog, we look at the major economic indicators in our city, province, and across the country, and then as is the custom, we argue about the state of the economy in the comments section below.

Thanks, as always, to our friend Jason Friesen at Outline Financial for providing us with today’s slides!

Let’s start with an updated look at the Bank of Canada interest rate:

Please, please, please do not forget that I was one of about six people in the country to predict that we’ll see a cut to the overnight lending rate before we see a hike.

I’m not trying to be a cheerleader here, nor am I pumping the tires of the real estate market.  I simply do not believe that we’ll see a hike, based on the economy and what’s happening around the world, and I honestly think we’re going to see a cut by the end of the year, or in early 2027.

You heard it here first!

As the above slide shows, we haven’t seen any movement in the overnight rate since October 29th, 2025, and there have now been five straight rate-holds in 2026, and six straight if you go back to 2025.

As for why I think we’re going to see an interest rate cut before we see a hike, have a look at the GDP numbers:

Ah, yes, a “technical recession.”

Is that a recession with a qualifier?

Two negative quarters in a row does spell “recession,” but more important was just how far off the mark the predictions were!

The market forecast was +1.5%, and we saw -0.1%.

That’s a pretty big swing-and-miss.

Unemployment was down last month, albeit moderately:

“Lower than expectations,” but we all know what those expectations are worth.

I don’t know about you, but I don’t read much into one-tenth of a percentage point, any which way.

Unemployment is up significantly since 2022, when we started to see interest rates increase.

Unemployment remained the same here in Ontario, at 7.0%, but that’s also well above the low-point in 2022-2023, and it places the province mid-pack as far as the country goes:

And what of inflation?

The mere sound of the word brings me back to 2023 when it was all the rage!

Inflation was down to 2.8% in June, from 3.2% in May, and once again, “below expectations.”

As the above chart shows, that 3.2% headline CPI in May represented the first time we saw the figure pop above that target 1-3% band since December of 2023.

This is why we’re hearing talk about interest rate hikes, and I understand the optics here.

But in my personal (and moderately educated) opinion, with unemployment remaining high and GDP contracting, an inflation rate of 2.8% isn’t going to lead to rate hikes.  Another quarter of negative GDP and unemployment over 7% might lead to a cut.

Now, for those who can’t get enough of inflation, here’s a chart that shows headline inflation and core inflation:

While headline inflation has been steadily increasing throughout 2026, CPI trim and CPI medium are both downtrending, as the above chart clearly shows.

So much of what affects our inflation rate has to do with oil/gas prices, of course…

I don’t think anybody expects this “conflict” in the Middle East to end any time soon, so we’re simply going to have to get used to these gas prices.

Now, back to interest rates, for a moment.

I always muse that predictions from the Big Banks, er, excuse me – forecasts from the banks, are overrated.

Why?

Because they get to “revise” them every time they’re wrong.

But for the record, here’s where the banks see rates going by the end of the year:

Exactly

Five of six dentists recommend Colgate toothpaste.

Er, I mean, five of the six big banks are predicting rates to stay put over the next five months.

As for beyond 2026, this is where I put far less stake into what the banks think.

As I said, these predictions or forecasts are constantly revised, and these forecasts look nothing like the ones we saw one year ago, but I digress…

Only TD and BMO, for now, predict that we’ll see the overnight lending rate remain at 2.25% for the next seventeen months.

RBC?  Really?  Up 100 basis points?

Put a sticky-note next to that one…

The Bank of Canada rate sets the variable rate mortgage market, as we know.

As for how this affects the fixed-rate mortgage market looks, let’s check out the five-year government bond yields:

Between February and May, we saw bond yields increase by almost seventy basis points, which translated almost identically in terms of five-year fixed rate mortgages being offered to borrowers.

As the slide notes, the increase in bond yields, and thus fixed-rate mortgages, correlates precisely with the conflict in the Middle East.

The slight decline in bond yields from May, followed by an increase over the last month, looks a lot like what happened with gasoline prices!

As a result, borrowers are increasingly taking fixed rates over variable:

Since February, the percentage of borrowers taking variable-rate mortgages has declined from 41.8% to 32.8%.

Not a lot of appetite for risk out there, is there?

Having said that, mortgage arrears in Canada continue to increase:

Increase…….from the all-time low, that is!

Recall that I wrote about this on TRB several times in the past year; how the media love to talk about mortgage arrears “doubling,” but they fail to mention this is doubling from the all-time low, and that we’re still lower than any point in the last decade.

We’re still also well below that of our friends in the United States and the United Kingdom:

Last, but certainly not least, it’s worth checking in on future supply.

Building permits for single-family dwellings in both Canada and Ontario remain at the lowest points we’ve seen in decades:

Some people feel that, with immigration being scaled back, this won’t matter.

But tell that to the head of the CMHC, who would disagree, according to this article:

“Canada’s Housing-Supply Crisis Isn’t Over, New Construction Still Needed, CMHC CEO Says”
The Globe And Mail
July 6, 2026

From the article:

“There’s a lot of talk about maybe we’ve manufactured a soft landing for the housing market, and everything’s fine, and there’s no more supply shortage – and that’s not our belief,” she told The Globe and Mail’s Editorial Board Monday.

“We believe there’s a market imbalance in some sectors, but overall, we’re still short. We still need more housing. We need the right housing.”

Ah, yes.

“The right housing.”

But that’s a topic for another day.

Welcome back from the long weekend, folks!  And welcome to August, aka my birthday month!