Oopsie

Oh, dear. Is the next interest rate cut nixed? Does this mean the housing revival that tens of thousands of realtors pray for is, well, pooched?

Here’s the latest. According to the Bank of Canada Odds site (https://bankofcanadaodds.com/) the chances of a second chop are fading faster than Pierre Poilievre’s media attention. The scorecard for the October 29th rate setting is as follows:

Cut – 33%
Hold – 67%

That would keep the BoC policy rate at 2.5%, with the next review coming two weeks before Christmas. The odds (at present) for that date are 80% in favour of a quarter-point drop. So, eventually, rate relief may come. But not now. Not for the autumn house-hunt.

As you may know, our new finance minister, the elegantly-named François-Philippe Champagne, drops the first Carney administration budget six days after the central bank review, on November 4th. And it seems this may be one of the primary reasons Mr. Market thinks cheaper money may not be coming soon.

It’s all about the deficit. Spending. And fiscal stimulus.

Lately the chief economist of one of the Big Six banks said the Carney budget may contain an eye-watering deficit of $100 billion. That’s several big sausages larger than the $70 billion shortfall the Parliamentary Budget Officer was moaning about recently.

Jason Jacques, apparently somewhat of a showboat (according to his predecessor) called that amount of red ink, “stupefying,” “shocking” and “unsustainable”. Oppo politicians have eaten that up, flaming the Libs daily in QP.

The government has revealed nothing but made it clear there will be a torrent of spending in the next few years on ‘nation-building’ infrastructure projects (mines, ports, reactors, pipes) so we are less dependant on that other country, and on rearming the military. (On a good day, we have one operating sub.)

So maybe all that spending is required. But what’s the impact on condos in the GTA and Kelowna?

Well, a mother of a deficit is antithetical to falling interest rates. When the feds spend more than they collect, the shortfall is financed by issuing bonds. The country already has a debt of $1.2 trillion, so adding a hundred billion is meaningful. Bond buyers can demand a higher interest rate in order to mitigate risk. So as bond yields rise, so do mortgage rates – with the five-year home loan based on the benchmark five-year GoC debt.

Second, big deficits mean big spending, which means more economic stimulus. Demand rises, putting pressure on inflation – even when unemployment is higher and the economy is in torpor. A main mandate of the central bank is to keep the cost-of-living increase in a narrow zone (and below 2%), suggesting no interest rate cuts which would only stimulate the economy further. After being super-cautious, CBer Tiff Macklem is unlikely to make credit cheaper and encourage borrowing when the feds are firehosing money.

Now, what does it mean if the Bank of Canada hits the pause button again at the end of this month?

Nothing good, not if you flog houses or mortgages for a living – or are trying to sell a property. The autumn market in most places has been mildly positive, and better than the Spring disaster. But inventory has built up faster than sales, buyers are in control and segments of the market – like newly-built units – are ghosted.

So, the standoff continues. Sellers think prices should stay sticky because real estate was made by the hand of God and the market will recover its glory. Buyers smell blood and look forward to walking over the cadavers of owners to their new affordable home.

Neither boom nor bust is inevitable, but in the absence of a rate cut two weeks from now momentum will be to the downside. Light a candle for Re/Max.

About the picture: “I love reading your blog everyday,” writes Julia. “Thanks to all your team for a wonderful job. I especially love the dog photos. Here is a picture taken when we were staying at a hostel in Puerto Natales, Chile, before hiking in Patagonia. This little homeless dog was given a home at the hostel much to the delight of all the hikers.”

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

Source: https://www.greaterfool.ca/2025/10/13/oopsie/