BMO economist predicts stable market despite interest rate concerns
A recent survey by BMO revealed mixed feelings about how shifting mortgage rates and new housing rules are impacting buying decisions.
While 36% of respondents believe falling mortgage rates make purchasing a home more feasible in the next two years, 39% remain concerned that future rate changes could hinder their plans.
"The Canadian housing market seems to be going through a transitional phase, with activity picking up on the back of Bank of Canada rate cuts and more available inventory," said BMO senior economist Robert Kavcic. "Sales volumes have bounced back from last year and we are seeing prices stabilize. Most buyers' markets are disappearing, although there are still a few clear pockets of weakness. All told, we are expecting fairly steady sales and price activity through 2025."
New relaxed mortgage rules are also shaping expectations. Over a third (36%) of first-time buyers believe changes such as longer amortization periods of up to 30 years and the increased insured mortgage cap to $1.5 million will make purchasing easier.
The survey also showed that 56% of prospective first-time homebuyers plan to use the First Home Savings Account (FHSA) to support their homeownership goals, up from 52% last year. It noted a steady rise in FHSA awareness, with 40% of Canadians reporting some knowledge of the account’s features, up from 31% in 2023. Younger demographics lead the charge, as nearly half (48%) of Gen Z respondents say they understand the FHSA.
Benefits including the “ability to make tax-deducible contributions, tax-free growth of the investments and the ability to hold various investment types,” according to Nicole Ow, vice president and head of retail investments at BMO.
“It is like an RRSP and TFSA rolled into one for first-time homebuyers," Ow said. "For most, buying their first home will be part of a multi-year plan, involving several savings vehicles like the FHSA, RRSP withdrawals through the Home Buyers Plan, and may also involve multiple generations, with parents and grandparents contributing financially."
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The FHSA is also gaining traction as a tool for intergenerational financial support, BMO said. Nearly a quarter (23%) of parents intend to use the account to assist their adult children with home purchases. Younger parents are particularly likely to leverage the FHSA for this purpose, with 42% of Millennial parents indicating they would use the account, compared to 21% of Gen Z parents and just 7% of Boomer parents.
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