Mortgage broker sees Ontario home prices ‘grinding down’ amid trade war

Mortgage broker Ron Butler explains what the Bank of Canada's rate cut will mean for people with mortgages and potential home buyers.

One mortgage broker says the latest rate cut by the Bank of Canada will benefit homeowners with variable mortgages, but the economic impact of U.S. tariffs could fuel mortgage competition among lenders, weighing on home prices in Ontario.

The Bank of Canada lowered its key policy rate by 25 basis points Wednesday to 2.75 per cent, marking the seventh consecutive cut, with Governor Tiff Macklem saying signs of momentum in Canada’s economy are facing risks from a trade war with the U.S. Ron Butler, a mortgage broker at Butler Mortgage, said in an interview with BNN Bloomberg Wednesday that major Canadian banks are expected to lower prime rates by tomorrow. Before the end of the month, he said the lower rates will be reflected in variable mortgage rates with some seeing lower payments, but all seeing lower interest rates.

With variable rates moving lower, Butler said those deciding to between variable and fixed products should consider their employment situation.

“I think it’s a very strong assumption that we’ll see further cuts. I think the Bank of Canada governor almost alluded to it. So therefore, if you have enough of a risk tolerance, if you’re secure enough in your job, that’s going to become the more important question moving forward for home buyers,” he said.

Butler said those with more secure employment may want to take a risk and choose a variable product.

“But for those who may have more precarious job positions, in the light of these tariffs and the light of an ongoing trade war, then you might want to be inclined to take (a) fixed (mortgage),” he said.

Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert, said in a statement to BNNBloomberg.ca that the rate cut will help some homeowners.

“With the rising cost of living and economic concerns weighing on many Canadians, this rate cut is a practical source of relief for variable rate mortgage holders. They’ll see an immediate decrease in their monthly payments, freeing up crucial cash flow,” she said.

However, Victor Tran, RATESDOTCA mortgage and real estate expert, told BNNBloomberg.ca in a statement that he doesn’t think more favourable mortgage rates will motivate potential buyers to enter the market.

“While more affordable mortgage rates are a good thing, the current economic climate is not stable and is not an encouraging environment for home purchases,” he said.

Butler added that generally in a trade war scenario, inflation moves higher as a result, which could come along side offsetting factors like lower rents. He said a recession induced by U.S. trade tensions is a “genuine possibility” and a key element to the current mortgage market.

“Unemployment is the biggest driver of default...it’s the thing that keeps bank chief risk officers up at night, and that’s something that we will see decidedly,” he said.

Butler also highlighted that Canada has had “incredibly low default rates.”

“Our default rates to Canada on mortgages are extremely low, have been and continue to be. In fact, in the last couple of years they’ve been half of what the historic average is,” he said.

However, if demand for mortgages falls, that could pose a bigger risk to Canadian lenders, Butler said, adding that banks are already seeing that and responding with “aggressive rate wars.”

Home prices ‘grinding down’

Butler said he expects further declines in mortgage demand, which he says will impact real estate markets.

He said the impact will differ across regions “but I think we’re absolutely going to see that translate into lower house prices in Ontario, it’s almost unavoidable. Possibly lower house prices in British Columbia.”

“Now, not vastly lower, not 25-30 per cent lower this year, but a grinding down of house prices in Ontario and British Columbia.”

Phil Soper, president and CEO of Royal LePage, said in a statement to BNNBloomberg.ca that he sees longer term stability in the housing market, despite the ongoing trade dispute.

“Additional rate cuts may be on the horizon as policymakers work to maintain stability. The housing market, while it may see a temporary slowdown in activity, remains largely insulated from trade disputes, ensuring its resilience in the long term,” he said.