The ffinal hurdle

So that’s it. The last hurdle to falling interest rates has been cleared.

Tomorrow morning the Bank of Canada rate will drop a quarter point to 2.5% and along with it the bank prime will wilt,  plus variable-rate mortgages. Five-year money is already feeling the love, and there’s more to come.

“Inflation remained largely unthreatening in August which, combined with recent weakening in the labour market, should make an interest rate cut tomorrow a done deal,” say the economists at the penguin bank. “With core measures of inflation likely to cool further in the months ahead thanks to the slack building up in the economy and the removal of many retaliatory tariffs on September 1st, we not only expect a 25bp cut tomorrow but also a further reduction at the October meeting.”

Yes, almost everyone does. A cut tomorrow. Another one on October 29th. That will take the bank rate close to 2%, and there is still one more possible chopping day in 2025 – December 10th.

This morning’s inflation report – coming in at a peachy 1.9% (with a trim in the core reading) – was the final sign central bankers needed to bring out the stimulus sauce. Just in time, some people say. We’ve lost over 100,000 jobs in the last two months. The construction business in our major markets is in tatters. Economic growth has stalled out. House prices are down 19% from the peak. And PP is back in Parliament.

Oh yeah, and our major trading partner seems crawling towards civil war, or at least some deep political purge which will not end well. So what else is there to worry about? Except Bad Bunny and that new kissing bug.

“The economy continues to show signs of waning momentum as the unemployment rate ticks higher and job losses accumulate,” economists at TD said today. “Moreover, the termination of many retaliatory tariffs will help provide some offset to price pressures. We maintain the view that the BoC will have room to deliver two cuts this year to support growth and keep inflation in the target range.”

Yeah, baby. Two now and, adds CIBC, two more in 2026. Meanwhile the US Fed also makes a rate decision tomorrow, and also will cut. Like our guys, it will be the first one in 2025, but not the last. Mr. Market is looking forward to six (count ‘em – 6) decreases in that country by the end of the second quarter of next year. And there could be more, if Trump is successful in commandeering control of the Fed after next May rolls around. (Count on it.)

“The milder underlying short-term trends in core, alongside the recent weakening in employment, set the table for further rate relief down the line,” BMO economists say of the Canadian situation. And let’s all remember that history shows a 90% correlation between US and Canadian central bank policy. No reason to think that will change much.

Why?

Lower US rates will weaken the American dollar, strengthening ours. Not good for Canadian exports or inflation. So that encourages our guys to also ease up on the rate throttle, dropping the CB policy rate further. And, presto, soon you have interest rates that vaguely remind you of when everyone was wearing a mask and leaping off the sidewalk.

What are the implications?

The monetary dudes are playing chicken with inflation. Cheaper money brings more borrowing, spending, demand and inflated asset prices. Yeah, like houses. Combine that with the fact tariffs on things going into the US have increased nine-fold, and it’s a no-brainer that consumer prices will rise. This could be very nice for your investment portfolio and not so good for your daughter’s house-hunting.

Because two interest rate cuts in the next two months, plus potentially two more in the spring are coming, as mentioned, atop a 27% decline in the price of the average detached house in the GTA and a drop of almost 20% nationally. Yes, real estate still costs a stupid amount. But this one-two punch to affordability is rare, and it will be unusual (and weird) if increased sales are not the result.

This doesn’t mean a boom. It’s not a prediction of rampant FOMO, bidding wars on every corner or crazily-swelling prices. That was 2017. It was 2022. The reality in 2026 may be that the bottom quietly came and went.

Face it. The feds don’t want a real estate collapse. The central bank fears it. Seventy per cent of the population – homeowners – would be shocked. Half of them ruined. The economy would take a gut kick. The banks, too.

The only one who wants an affordable house is, well, you. Wake up.

About the picture: “Mittens, my 3-year-old Siberian Forest Cat, has a shocked look on his face because I told him we may be even further away than we thought from buying a place,” writes Andy. “Here’s the story: an older couple wanted to downsize and just moved into my parents’ building and they are trying to sell their current home. It’s a beautiful place and not terribly priced but it has been four months and zero offers. The plan is to take it off until Spring and then relist it for *more* money to account for the additional carrying costs. I’m wondering how we’ll ever get into the market when people’s reaction to a collapse in sales is to retreat and then raise prices. Is this a sound strategy going into next year or are they better off engaging in some more aggressive price discovery now before things get even worse?”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/09/16/the-ffinal-hurdle/