Higher bond yields threaten momentum of Canada's urban housing rebound

According to the Housing Market Monitor released by National Bank of Canada Capital Markets, the recent gains in Canadian home sales and price growth are fading as bond yields climb. The report highlights a near-1% drop in national home sales from July to August, ending a five-month period of rising activity, and a slight decline in the Teranet-National Bank Composite Index to its lowest level since April 2023. Although five-year fixed-rate mortgages, which track bond yields, and variable-rate loans, tied to the Bank of Canada's overnight rate, have so far remained stable, the analysis warns that higher yields are likely to filter into mortgage pricing in the coming weeks.

A short-term buffer may exist because many borrowers are locked in at lower rates or may opt for shorter-term or variable mortgages, which currently carry lower costs. Nonetheless, the forecast suggests that rising rates could stall or reverse the modest recovery seen in Canada’s housing market.