"All eyes were on The Bank of Canada last month as they cut interest rates by 25 basis points again during their July 24th meeting, thereby taking the overnight policy rate down to 4.5%. 

We believe that owing to a sustained deceleration in inflation, the central bank will continue its monetary easing at the September and December meetings and well into next year. 

The policy rate will likely fall to 2.75% next year, reducing the burden of higher monthly mortgage rates on renewals in the next 18 months. The influx of roughly 2 million immigrants to Canada has raised overall consumer spending, averting a recession this year, but GDP per capita continues to decline.

Labour markets continue to soften as job vacancies have fallen sharply, and the jobless rate has risen from 4.9% to 6.4%. The latest business and consumer surveys have suggested that inflation expectations have fallen and wage inflation—a lagging indicator—will soon decline. Companies expect to cut their spending on machinery and equipment, and commercial real estate valuations have fallen owing to the sharp rise in office vacancy rates.

Housing market activity has slowed with the run-up in interest rates from March 2022 until June 2024. Lower interest rates will spur transactions and increase new listings next year. Housing affordability will improve as price pressures remain muted. The housing shortage, however, will likely mitigate the improvement, particularly as the shortage of experienced construction workers impedes rapid housing supply increases.

-Dr. Sherry Cooper, Dominion Lending Centres