Given the recent ominous signs of a downturn in Toronto, we doubt that the Bank of Canada will be able to do much to prevent a correction in the housing market. The Bank of Canada only has limited scope to reduce its policy rate. Furthermore, the bottom line is that Canadian bond yields are more often driven by global economic conditions rather than domestic monetary policy. With the Fed expected to keep hiking US policy rates over the next couple of years, Canadian long-term yields are more likely to rise, mirroring increases in the US. That will push the five-year fixed mortgage rate higher which, in the new regulatory environment, will only make housing more unaffordable.
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