What the Bank of Canada interest rate decision on Wednesday could mean for a housing market hit by Trump tariff uncertainty #CanadaFinance

The situation is slightly less grim for those looking to renew, Ho, the financial planner, says. “Those who were initially nervous about their upcoming renewals are no longer nervous because it seems like we’re in a rate environment where there’s some stability, or perhaps even rates going down,” she said.

In a speech in Calgary last month, BoC governor Tiff Macklem said the “pervasive uncertainty” meant the Bank would focus less on a specific economic outlook because “several outcomes can all look plausible.”

From a mortgage standpoint, Butler says two scenarios look plausible at this point — one in which rates are cut significantly lower as the economy sputters, and one in which rates rise in response to significant inflation.

If unemployment spikes and GDP crashes, Butler says, the BoC might cut rates down to, say, 1.75 per cent, and variable mortgage rates would follow a similar path. “It may not pull fixed [mortgage rates] down, because fixed has to exist in a world of government bond trading that is receiving some unique pressures,” he said, referring to the uncharacteristically turbulent bond market to which fixed rates are tied.

“Another scenario is inflation does perk up,” Butler said, to somewhere above three per cent, “at which point the Bank of Canada could say, ‘Oh, geez, we’re definitely not cutting, and fixed rates could rise based on this obvious inflation.”

The overall economic uncertainty also changes the stakes around choice of mortgage. Butler says fixed rates have been fairly consistently coming in below four per cent in recent weeks, a number at which more people opt for the stability of a fixed rate. The proportion of people choosing variable rate mortgages for a home purchase was as high as around one-third in the second half of 2024, he says, but that has retreated to around 20 to 25 per cent as fixed rates fall.

Ho says she counsels her clients to think about fixed versus variable in the same way they think about their investments. “How are you going to react if you know the markets drop this much, you know, are you going to hit the panic button? And variable versus fixed, it’s the same concept,” she said.

If the trade war is resolved in some way, the market will likely remain quiet for a while, Ma says. “I think you’re still looking at probably a couple months before consumers gain confidence in making any purchases,” he said.

The sheer scale and size of the tariffs, when announced, took markets and individuals largely by surprise, Ma says. “So, people need time to settle in, even when the tariffs and everything are over, to build that confidence back up, you know, to plan.”

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.

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