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Scotiabank has updated its interest rate outlook, now projecting the Bank of Canada (BoC) will implement three rate cuts in 2026, as global economic conditions deteriorate under intensifying U.S. trade policies. A Shift in Forecast This marks a reversal from Scotiabank’s previous stance, which anticipated the BoC holding its policy rate steady at 2.75% through the forecast period. The bank now sees worsening economic growth—largely due to what it calls a “dramatic escalation of America’s war on trade.” Although Canada has avoided the brunt of new tariffs, the economic fallout from slower U.S. growth and weaker commodity prices is already having an impact. Cross-Border Economic Strain Scotiabank warns that both the U.S. and Canadian economies are increasingly vulnerable. In the U.S., unprecedented tariffs are already slowing activity “in a material way,” with effects expected to persist into next year. While tariffs on Canadian exports haven’t shifted since March, the broader economic drag is becoming more apparent. The report also notes that the Federal Reserve is now expected to keep its policy rate unchanged for the rest of 2025 due to the inflationary impact of trade measures. The BoC, similarly, is projected to stay on hold for the rest of this year—though Scotiabank acknowledges that could change depending on how inflation and growth evolve. Recession Still a Risk While Scotiabank stops short of forecasting a recession—unlike Oxford Economics—it concedes that it's a close call. “There is no doubt that economies will flirt with recession owing to the tariffs and associated uncertainty,” the economists caution. For Canada, Scotiabank now projects GDP growth to slow to just 0.7% in 2026, with the unemployment rate climbing to 7.2% as economic momentum weakens. Rate Cuts Delayed Until 2026 Despite the headwinds, Scotiabank expects the BoC to keep rates steady through 2025, with cuts beginning next year. Their base case calls for three cuts totaling 75 basis points in 2026 to help support a fragile recovery. This forecast diverges from other major banks. BMO, TD, and CIBC foresee rate cutsn continuing this year, followed by a pause. Meanwhile, National Bank and RBC anticipate modest easing in 2025, followed by one or two hikes in 2026 as conditions improve.

The Liberal Party, now led by Mark Carney, has won a fourth consecutive term in the recent federal election, securing a minority government with 168 seats—just four short of a majority. The party will need continued support from the NDP or Bloc Québécois to pass legislation. Leadership Change, Policy Shifts While the party balance remains largely unchanged, Carney’s leadership signals a pivot in key policy areas, especially fiscal and housing policy. Fiscal Outlook: Big Stimulus, Bigger Deficits The Liberals plan to inject $77 billion in new spending over the next four years, representing 2.5% of GDP in 2024, according to Oxford Economics. The focus will be on defence, infrastructure, and housing, along with personal and corporate tax cuts. The Parliamentary Budget Officer projects a federal deficit of $62.3 billion (2% of GDP) in 2025–26, up from a baseline of $46.8 billion (1.5% of GDP). CIBC’s Avery Shenfeld warns the actual deficit could be even higher if economic growth falls short, noting, “Odds of the deficit topping 2% of GDP are likely more material than an undershoot.” Economic Outlook: Stimulus Eases, but Can’t Avert Recession While the planned stimulus offers some buffer, economists expect only a modest impact. Oxford Economics estimates the measures will boost GDP growth by 0.2 percentage points in 2025 and 0.6 in 2026. However, a mild recession is still expected to begin in the second quarter of this year. BMO’s Robert Kavcic calculates the net stimulus at around 0.5% of GDP in 2025/26, even factoring in retaliatory tariffs. He cautions, though, that downside risks to the fiscal outlook remain if the economy underperforms. Housing Policy: Affordability and Supply in Focus The Liberals are promising several housing initiatives to tackle affordability and increase supply. Key measures include: • GST removal on new homes under $1 million for first-time buyers • $25 billion i n financing for affordable housing development • A 1% tax cut to the lowest federal income bracket • Reversal of the recent increase to the capital gains inclusion rate Many of these policies enjoy cross-party support, particularly the GST exemption and large-scale infrastructure investment. Climate and Carbon Policy: Shifting Gears The Liberals plan to scrap the consumer carbon tax but maintain pricing for large emitters. They also propose import tariffs on goods from countries lacking comparable climate policies . Interest Rates and Market Reaction With significant fiscal stimulus on the horizon, the Bank of Canada is expected to hold off on aggressive rate cuts. Oxford Economics notes that government spending is "doing most of the heavy lifting," potentially limiting the need for monetary easing. Still, rate cuts are likely. BMO projects a 75-basis-point reduction by year-end, while markets anticipate closer to 50. The upcoming federal budget will be key in shaping the Bank’s next move. Markets were largely unmoved by the election result. The Canadian dollar and bond yields held steady, with investors now watching the budget and U.S. trade negotiations for the next major signal.

The federal government has announced a delay in its planned capital gains tax increase, moving the implementation date from June 25, 2024, to January 1, 2026. Finance Minister Dominic LeBlanc made the announcement today, citing the need to provide taxpayers and business owners with greater certainty ahead of the upcoming tax season. The proposed increase would raise the capital gains inclusion rate—the portion of gains subject to tax—from 50% to 66.7% for individuals earning over $250,000 in annual capital gains, as well as for corporations and most trusts. Originally introduced in Budget 2024, the change had not yet been legislated when Parliament was prorogued earlier this year, leaving its fate uncertain. With a federal election expected later this year, a potential change in government could result in the proposal being scrapped entirely. Minister LeBlanc emphasized that the decision to delay was made in the interest of stability. “Given the current context, our government felt this was the responsible course of action,” he stated, reaffirming the government's commitment to engaging with Canadians on fiscal policies that support economic growth. While the delay provides clarity for taxpayers, it could also impact both federal and provincial budgets, postponing anticipated revenue from the tax increase and affecting short-term fiscal targets. Exemptions and Related Measures Proceed as Planned Despite the postponement of the tax hike, several related measures will move forward on schedule. These include: Principal Residence Exemption: No capital gains tax on the sale of a primary home, ensuring profits remain tax-free. $250,000 Annual Threshold (Effective January 1, 2026): Individuals with gains below this amount will continue to benefit from the 50% inclusion rate. For example, a couple selling a cottage with a $500,000 gain would not face additional taxes. Lifetime Capital Gains Exemption Increase (Effective June 25, 2024): The exemption rises to $1.25 million, reducing taxes on small business shares and farming/fishing properties for those with eligible gains under $2.25 million. Canadian Entrepreneurs’ Incentive (Effective 2025): Lowers the inclusion rate to one-third for up to $2 million in eligible gains, increasing annually to $2 million by 2029. Entrepreneurs could pay reduced taxes on up to $6.25 million in gains. While the capital gains tax increase has been deferred, these measures are intended to balance tax fairness with investment incentives, ensuring continued support for small businesses and individual investors.

Millions of Canadians will renew their mortgages in 2025, many transitioning from historic low rates. With rates now doubled since 2020, this shift may cause payment shock. However, aggressive competition among lenders presents opportunities for better deals. Interest Rate Outlook The Bank of Canada recently cut its key rate by 0.25% to 3%, signaling potential future cuts. If this trend continues, variable mortgage rates may drop, while fixed rates could decline alongside bond yields. Why 2025 Is Unique Over 1.2 million mortgages—worth nearly $590 billion—are up for renewal. Most borrowers originally locked in rates between 1–2.5%, while current rates stand at 4–6%, raising affordability concerns. How Lenders Are Competing Big Banks: Offering rate-matching, bundling products, and expanding digital services. nesto: Canada’s largest digital lender, offering rates 10–40 basis points lower than banks, saving borrowers thousands. Potential Savings A 40-basis-point reduction could save thousands over a mortgage term. On a $500,000 mortgage, nesto’s lower rates could mean over $11,700 in savings versus big banks. How to Get the Best Renewal Rate Start Early: Lock in a low rate up to 150 days in advance. Compare Rates: Never accept the first offer; explore options from banks, brokers, and digital lenders. Fixed vs. Variable: Fixed rates offer stability; variable rates may drop with further BoC cuts. Negotiate & Leverage Incentives: Request rate matching, cashback deals, and explore stress test exemptions. Economic Impact on Mortgages Potential US-Canada trade tensions could impact rates further, leading to additional BoC cuts. Bottom Line With heightened competition, homeowners have leverage in 2025’s renewal wave. Shopping around can secure significant savings. Compare rates now to ensure the best deal.

In 2023, Ontario dominated Canada’s housing market searches, but last year saw a shift towards more affordable regions like Alberta, according to Zoocasa. Cities such as Edmonton and Calgary gained attention for their lower housing costs and reduced living expenses. This trend is reflected in Canada’s top five most-searched cities in 2024: Toronto, Edmonton, Calgary, Mississauga, and Vancouver. Toronto and Vancouver Lead the Market Toronto continues to top the charts, with one-bedroom rents averaging $2,374 and home prices reaching $1,061,700. Vancouver follows closely, boasting Canada’s highest average rents at $2,534 and home prices averaging $1,172,100. Mississauga remains a key choice for those seeking proximity to Toronto, offering slightly more affordable rents at $2,279. Ontario’s Housing Landscape Ontario’s real estate market remains dominant, driven by population density and economic opportunities. Key cities include: Hamilton : Located an hour west of Toronto, it attracts first-time buyers with its relatively affordable home prices and rents. Oshawa : Known for its budget-friendly condo townhouses, Oshawa appeals to cost-conscious buyers seeking easy access to Toronto. Ottawa : Canada’s capital offers a stable job market, high quality of life, and housing more affordable than Toronto. Its proximity to Quebec’s lakes also makes it a popular destination for cottage properties. Alberta : An Affordable Alternative With rising living costs, Alberta’s cities offer practical options for buyers and renters: Calgary : Combining urban amenities with outdoor adventures, Calgary features one-bedroom rents averaging $1,634 and home prices at $575,600. It’s an attractive choice for families and young professionals. Edmonton : Known for its affordability, Edmonton offers one-bedroom rents at $1,355 on average and home prices of $395,400, making it one of the most cost-effective urban centers in Canada. Its strong economy and lower cost of living draw investors and first-time buyers alike. Who’s Driving the Market? Two key demographics are shaping Canada’s housing market: Young Professionals and First-Time Buyers (25-34): They prioritize affordability and urban convenience, often opting for more economical markets like Alberta. Mid-Life Buyers (45-64): This group is focused on downsizing or assisting their children with housing costs. As affordability takes center stage, regions like Alberta are becoming increasingly attractive, reshaping Canada’s housing landscape.

The average asking rent across Canada fell to $2,109 in December, reaching its lowest level in 17 months, according to a report by Rentals.ca and Urbanation. Rents have decreased by 3.2% compared to December of the previous year, marking the fifth consecutive month of decline. This cooling trend comes after years of rapid rent growth, with rates climbing by 8.6% in 2023 and an even sharper 12.1% in 2022. Despite the recent drop, average rents remain 16.8% higher than they were five years ago. Shaun Hildebrand, president of Urbanation, cites several factors behind the rental market's slowdown, including a record number of apartment completions, slower population growth, and economic challenges in 2024. "The rental market softened across most parts of the country last year," Hildebrand stated in the report. He also noted that while rents may continue to decrease in 2025, the declines are likely to be temporary and minimal. The long-term outlook suggests upward pressure on rents will return due to a chronic undersupply of rental housing in Canada. Hildebrand emphasized that the current slowdown in construction will likely tighten supply, leading to accelerating rents in the future. This recent trend offers a brief reprieve for renters, but it underscores the ongoing challenges posed by housing affordability and supply constraints in the Canadian rental market.

Imagine buying a house and locking in a single interest rate for 30 years, keeping payments steady with no major penalties for early repayment. If rates drop, you could refinance to lower your monthly payments. This is the U.S. 30-year fixed mortgage model, a system the Canadian government is exploring for its housing market, as mentioned in the recent fall economic statement. In the U.S., this model is supported by government-backed entities like Fannie Mae and Freddie Mac, which buy mortgages from lenders and turn them into securities. This system frees up capital, allowing banks to offer longer, stable mortgage terms. Canada lacks such a system, requiring lenders to renegotiate terms every few years, resulting in shorter fixed-rate terms, typically around five years. Adopting the U.S. model in Canada would likely lead to higher interest rates due to the additional risk lenders face. Without government support similar to the U.S. system, Canadian lenders would need to charge a premium to cover the uncertainty of long-term interest rates and borrower stability. While 30-year mortgages provide stability, Canadian shorter terms often come with lower rates, making them more affordable. These frequent renewals also allow homeowners to adjust to better market conditions, offering flexibility that might be lost with longer terms. Experts argue that, while appealing, 30-year mortgages would be costly in Canada and might not increase affordability. For now, Canada’s system balances consumer needs with industry stability.

Two significant mortgage reforms came into effect on December 15. aimed at improving housing affordability and easing financial pressure. These include expanded 30-year amortizations and a higher insured mortgage cap. Overview of the New Rules Increased Insured Mortgage Cap: The limit rises from $1 million to $1.5 million, enabling buyers in higher-cost markets like Toronto and Vancouver to qualify for smaller down payments. Expanded 30-Year Amortizations: Available for first-time homebuyers and new builds with a loan-to-value ratio of 80% or higher. Existing Programs Supporting Buyers. These reforms complement existing initiatives: First Home Savings Account (FHSA): Tax-deductible savings up to $8,000 annually and $40,000 lifetime for first-time buyers. Home Buyers’ Plan (HBP): Tax-free RRSP withdrawals of up to $60,000 per individual for down payments. Other Support: Land transfer tax rebates, enhanced First-Time Home Buyers’ Tax Credit, and GST/HST rebates for new builds. Supply-Side Initiatives The government also focuses on increasing housing supply through programs like: Secondary Suite Loans: Up to $80,000 for rental unit creation with favorable terms. GST Rebates for Developers: To incentivize affordable rental construction. Housing Accelerator Fund (HAF): $4 billion for municipal pro-housing policies and projects. Impact and Reactions The changes may boost home sales and prices in 2025, with TD Economics predicting a 9% rise in purchasing power for first-time buyers due to extended amortizations. However, critics highlight concerns about increased debt and limited accessibility for buyers requiring high incomes to qualify.

In Canada, 39% of households have mortgages, their largest recurring expense (Statistics Canada, 2024). To ensure financial stability, regulators have required federally regulated lenders to conduct mortgage stress tests for over a decade. Stress tests evaluate whether borrowers can manage higher payments under scenarios like income reductions or cost increases. By 2018, these tests covered most mortgages, boosting resilience while curbing credit growth and house price surges. Amid the 2022 interest rate hikes, stress tests proved effective in preventing defaults, enhancing credit quality, and ensuring borrower resilience, particularly for high-LTV loans. By limiting excessive borrowing through robust debt service calculations, they strengthen Canada’s financial system. Key Findings: 2016 Tests (Insured Mortgages): Improved credit quality but had limited market impact. 2018 Tests (Uninsured Mortgages): Slowed credit growth, moderated house price growth, and enhanced resilience. 2022 Rate Hikes: Regions with prior stress test exposure saw fewer delinquencies, especially for high-LTV borrowers.