Dear Valued Subscriber

Today at RealEdge, we’re breaking down two clear-cut scenarios for what the housing market might look like depending on which way interest rates go:

Scenario A: Rates Stay Steady vs. Scenario B: Rates Drop.

For both homeowners and investors, understanding the differences now can help you position smartly. We'll walk you through the mechanics, the likely outcomes, and key action-steps in each case.

🔍 Scenario A – Rates Stay Steady (No Significant Cuts)

What it means: The Bank of Canada holds its policy rate around current levels, and fixed/variable mortgage rates don’t drop meaningfully in 2026.

For Homeowners

• Payment burden remains elevated: Fixed-rate renewals locked at low rates still face future higher cost if rates don’t fall significantly. As the BoC noted, many renewals in 2025-26 already face payment increases.

• Affordability stays challenged: With borrowing costs unchanged, new buyers continue to feel the pinch. Existing owners may hesitate to move or upgrade, reducing turnover. Research shows higher mortgage rates directly reduce demand.

• Home-price growth likely muted: Without the stimulus of lower rates, demand may remain flat. Balanced markets or a slight downward drift become more plausible in overheated segments.

For Investors

• Yield pressure stays: Since financing costs remain higher, cash flow models must assume higher cost of debt. That raises the bar for deal viability.

• Less speculative upside: With rates stable, the “jump in value” scenario from rate relief is off the table. Emphasis shifts to rental income, value-add, and operational efficiency.

• Opportunistic buying may soften: There’s less of a surge-buying wave—so competition might ease, but so could value appreciation.

Market Behaviour

• Listings may stay elevated: Some homeowners delay moving, but others list to differentiate (especially if carrying cost is high) — leading to slightly more supply.

• Price dispersion widens: Top-end freeholds may hold up, but condos or older inventory may soften.

• Regional divergence grows: Secondary markets might outperform relative to high-price metros where payment burdens are severe.

🚀 Scenario B – Rates Drop (Meaningful Cuts)

What it means: The Bank of Canada eases policy rate (say by 25–50 bps) in spring/summer 2026, and mortgage rates drift lower.

For Homeowners

• Affordability improves: Lower rates reduce the monthly carry cost, making ownership more accessible and encouraging movement.

• Renewal relief arrives: Fixed-rate holders renewing or refinancing might lock in lower rates, easing payment pressure. Some experts link rate drops with renewed demand.

• Price growth potential reinstated: With cheaper money and improved sentiment, home-prices could resume modest growth—especially in well-located segments.

For Investors

• Cap-rates compress: Lower rates reduce borrowing costs and can increase property values in yield-sensitive assets.

• More active acquisitions: With better financing conditions, more investors may re-enter market, increasing competition.

• Strong segments shine: Rental demand in supply-constrained zones becomes more attractive as borrowing cost falls.

Market Behavior

• Demand pickup: Buyers who were sidelined by high rates may return especially first-timers or move-ups.

• Inventory tightening: If listings don’t increase proportionally, the improved demand could tighten markets and support price growth.

• Bounce back in activity: Sales volume, price indices and construction starts could all nudge upward as rate relief feeds through.

🎯 Quick Comparison Table

✅ RealEdge Action-Steps

If you’re a Homeowner:

• Assume the “steady-rate” scenario in your planning. Budget for a carry cost that doesn’t improve dramatically.

• If you believe a rate drop is likely, consider locking in refinance early or moving when your term ends.

If you’re an Investor:

• In the steady scenario: prioritize cash flow, avoid high leverage, focus on value-add or rental income.

• In the drop scenario: selectively move on acquisitions in sub-markets with strong fundamentals and supply constraints.

If you’re a Buyer:

• Base your decision on affordability at today’s rates; treat any future rate drop as a welcome bonus—not a guarantee.

• In markets where the supply is tight and quality matters, a rate drop brings more competition. Be ready.

🧩 The RealEdge Bottom Line

We’re not betting one scenario will happen over the other but both carry real implications. If rates stay steady, expect stability or modest growth, not boom. If they drop meaningfully, we could see renewed momentum especially in well-located, supply-constrained markets. The key? Plan for payment resilience and focus on fundamentals location, condition, demand over speculative upside.

The RealEdge Team

See you next week