The Canadian housing market continues to struggle with affordability challenges as new analysis from BMO reveals that mortgage relief remains elusive. With the Bank of Canada maintaining its cautious stance and bond yields climbing, both variable and fixed mortgage rates are expected to stay elevated, keeping the real estate market in a prolonged slowdown.

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The Canadian housing market continues to struggle with affordability issues as new analysis from BMO reveals that mortgage relief remains elusive. With the Bank of Canada maintaining its cautious stance and bond yields climbing, both variable and fixed mortgage rates are expected to stay elevated, keeping the real estate market in a prolonged slowdown.

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Variable Mortgage Rates Stalled by Bank of Canada Policy

The Bank of Canada's overnight rate decisions directly influence variable mortgage rates across the country. According to current market data, the central bank has held its benchmark rate at 2.75% following seven consecutive cuts from June 2024 to March 2025, with the hold driven by concerns over economic uncertainty and tariff-induced inflationary pressures.

Rising inflation expectations continue to limit the BoC's flexibility to reduce rates further. Market analysts anticipate the central bank will maintain its current position through the summer months, keeping variable rates hovering in the mid-4% range until at least September or October. BMO's current prime rate sits at 4.95%, with 5-year variable closed mortgages offered at the same rate for posted terms.

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Fixed-Rate Mortgages Face Upward Pressure from Bond Yields

Fixed-rate mortgages, which secure borrowing costs for longer terms, are directly tied to Government of Canada (GoC) bond yields. Recent months have seen these yields surge significantly, with 5-year GoC yields reaching near 52-week highs, climbing more than 60 basis points from spring lows.

This bond yield increase has effectively stalled the downward trend in 5-year fixed mortgage rates. Current BMO mortgage rates show 5-year fixed rates at 6.09% for posted rates, though qualified borrowers can access discounted rates as low as 4.64% for Smart Fixed products and 4.39% for insured mortgages.

The upward pressure on bond yields stems from multiple factors, including elevated inflation expectations and increased government borrowing requirements. As financing needs expand, this creates additional upward pressure on borrowing costs across the mortgage market.

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Housing Market Remains Locked in Slow Growth Pattern

Despite months of market adjustment, Canadian real estate shows few signs of meaningful recovery. The combination of mortgage rates that cannot break meaningfully below 4% and persistently high home prices creates a challenging environment for both buyers and sellers.

Recent market forecasts from the Canadian Real Estate Association (CREA) project 469,503 home sales for 2025, representing a 3% decline from 2024 levels. This downward revision reflects weaker-than-expected activity, particularly in British Columbia and Alberta markets.

Current market conditions show the lowest 5-year fixed rates available at 3.89% through select lenders, while 3-year variable rates start at 4.15% (Prime minus 0.80%). However, these competitive rates remain accessible only to borrowers with strong credit profiles and substantial down payments.

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Affordability Crisis Persists Despite Policy Interventions

Current mortgage rate and home price combinations continue to create significant barriers to homeownership. Standard debt service ratios require that housing costs not exceed 39% of gross monthly income, with total debt obligations capped at 44% of gross income.

For properties up to$500,000, buyers need minimum down payments of 5%. Properties between$500,000 and$1.5 million require 5% of the first$500,000 plus 10% of the remaining amount. Properties above$1.5 million demand 20% down payments, creating substantial barriers for many potential buyers.

The housing market now operates under fundamentally different conditions than the previous decade. Cash flow considerations and affordability metrics have regained importance after years of being overshadowed by speculative investment activity.

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Limited Near-Term Recovery Prospects

Industry analysts see little chance of market acceleration under current conditions. BMO senior economist Robert Kavcic warns that "Canadian mortgage rates can't break meaningfully below 4%, and that is keeping a tight lid on the housing market."

With inflation expectations remaining elevated and fiscal stimulus measures off the table, the primary paths to market recovery involve either deeper price corrections or improved end-user affordability through rate reductions. However, the Bank of Canada's current policy stance suggests rate relief may be limited in the near term.

The Canadian real estate market appears positioned for continued slow activity as both buyers and sellers adjust to this new reality of higher borrowing costs and changed market dynamics.

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Navigate Today's Market with Expert Guidance

In this challenging real estate environment, having experienced professionals on your side makes all the difference. At Coldwell Banker Horizon Realty, our knowledgeable agents understand current market conditions and can help you make informed decisions whether you're buying or selling.

Our team stays current with the latest mortgage rate trends, market forecasts, and financing options to provide you with strategic advice tailored to your specific situation. We work with trusted mortgage professionals who can help you explore all available financing solutions, even in today's competitive rate environment.

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Ready to explore your real estate options? Contact Coldwell Banker Horizon Realty today for a complimentary market consultation. Let our expertise guide you through today's complex housing market with confidence.