Impact of the Bank of Canada and Federal Reserve Announcements on the Real Estate Market

Central bank announcements are always closely watched by real estate professionals and borrowers. Recently, the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed) each communicated their monetary policy decisions, and their implications are significant for the Canadian mortgage market. Here is an in-depth analysis of these decisions and their short- and medium-term impacts.

Decisions of the U.S. Federal Reserve

The press conference by Jerome Powell, Chairman of the Fed, highlighted several key points:

• The U.S. labour market is considered balanced and does not significantly contribute to inflation.

• The Fed’s dual mandate (full employment and price stability) appears to be well maintained.

• Donald Trump’s statements will not influence monetary policy decisions.

• The rise in long-term Treasury bond yields is not due to inflation expectations but rather to a risk premium (an explanation that raises doubts, given the sharp increase in 30-year bond yields).

• Powell suggested that a rate cut in March is unlikely.

These decisions confirm that the Fed is adopting a cautious stance in response to economic conditions, which could keep U.S. mortgage rates relatively high in the near future.

Announcements by the Bank of Canada and Their Implications

The Bank of Canada made several noteworthy decisions:

• End of quantitative tightening (QT): Starting in March, the BoC will resume purchasing financial assets and increase the size of its balance sheet, which should inject liquidity into the economy.

• Reduction of the policy rate by 0.25%: A larger cut of 0.50% was considered but ultimately rejected in favor of a more gradual approach.

• Possibility of another rate cut in March: The BoC hinted that another reduction might be decided at its next meeting.

These measures aim to support the economy amid growing signs of a slowdown, but they come with some contradictions and concerns:

• The BoC claims that inflation is under control, yet rent inflation remains high, raising doubts about the consistency of this statement.

• It forecasts economic growth of 1.8% in 2025-2026, a projection considered optimistic by many analysts.

• Trade uncertainties linked to U.S. tariffs could complicate economic recovery.

• The Bank of Canada acknowledges that it cannot simultaneously stimulate productivity and control inflation, increasing the risk of stagflation (low growth and high inflation).

Impact on the Real Estate and Mortgage Market

The Bank of Canada’s announcement will have direct consequences on the mortgage and real estate market:

• Mortgage rates: The rate cut should gradually impact mortgage rates, especially variable-rate mortgages. However, the extent of this decline will also depend on future Fed decisions and bond market trends.

• Access to financing: A more accommodative monetary policy makes credit more accessible, potentially boosting real estate demand in 2025.

• Property values: With increased demand, property values could continue to rise, particularly in markets where supply remains limited.

• Stagflation and economic risks: If stagflation materializes in 2026 as anticipated, it could create a more complex economic environment, with upward pressure on costs and a slowdown in economic activity.

Outlook and Recommendations for Real Estate Professionals

Given these new monetary policy directions, real estate brokers and borrowers must adjust their strategies:

• Monitor mortgage rate trends: While the policy rate cut is good news, fixed mortgage rates remain influenced by the bond market. It is essential to track trends in 5- and 10-year bond yields.

• Take advantage of financing opportunities: Borrowers should evaluate the opportunities presented by lower rates and consider refinancing if beneficial.

• Prepare for economic volatility: Economic uncertainties and stagflation risks require careful planning for real estate investors and buyers.

The recent announcements by the Bank of Canada and the Fed confirm a gradual monetary easing in Canada, while the U.S. remains more restrictive. For real estate professionals and borrowers, this means improved financing conditions in the medium term but also the need to stay vigilant against economic risks and interest rate fluctuations. The key will be to anticipate market movements and adapt to new economic dynamics.