Hard choices

Another day, and the same question.

This year 1.2 million families have mortgages coming up for renewal. The central bank tells us 60% will see monthly payments hiked. Realtors say it’s no biggie. Move on. The doomers still insist it’s going crash the market, and point to condo carnage as evidence.

Sales are low. Inventory high. Prices are still stupid. Affordability is awful. The economy is weak. The last jobs report sucked. Trump is Trump. We don’t have a new trade deal yet, and may not get one.

So how to answer the question Ahmad just asked – which now lands in my email box daily? “Do I lock in for five years at just over 4%, playing it safe, or go variable and hope for the best?”

There is news today.

The latest US inflation stats came in (from the same guys who delivered that lousy employment report, causing Trump to fire the data boss), and no surprise. Core inflation hiked a little but the headline number stayed the same – 2.7%. Most of the price increases came from services, not goods. So no tariff terror yet.

Whassat mean?

An interest rate cut in the US is coming – as we told you it would. Mr. Market today is giving 93% odds on a quarter-point chop in a few weeks. In fact the US Fed and our Bank of Canada will be adjusting their rates on the same day – Wednesday, September 17th. How exciting. Book it off now.

A poll has found that two-thirds of Canadian economists think we will match the American drop.

“Services inflation really drove the price increases last month, while goods and commodity inflation remained more subdued than anticipated,” say BMO economists. “This suggests many businesses remain reluctant to fully pass-along tariff increases for fear of losing sales to a more cautious consumer. Despite the unwelcome increase in core CPI inflation over the last two months, the Fed will likely actively consider a rate cut in September.”

Most people think the tariff hit will still come – but not for a few months. In the meantime central banks are looking at job losses, weaker growth, slagging consumer confidence and the utterly unpredictable political environment, and figuring, as Sydney Sweeney says, that a little stimulus never hurt anyone.

“We still expect to see an acceleration in inflation ahead as the lagged impact of tariffs comes through more as pre-tariff inventories of goods evaporate,” say the analysts at CIBC capital markets. “But in the face of a soft labor market, the Fed will likely see through that as a one-time price level shift up, and we still see room for the Fed to deliver two 25bp cuts over the balance of the year.”

Okay, two cuts. Enough to change the housing market?

Most five-year mortgages are still north of 4%. Variables are about the same. Now that it appears certain the CBs will be nipping the cost of money in the coming weeks, those VRMs may dip under four and possibly down to 3.5% or so within months. It’s possible. Maybe. This all depends on the next economic reports and any crazy new stuff the White House does.

Will a half-point drop in mortgages between September and December ignite real estate, rekindle FOMO and light the loins of the houseless?

No. Not happening. Without a meaningful price plop, it’s unreasonable to think would-be purchasers will suddenly find the confidence – or the means – to write new offers. Major markets remain out of reach for average folks and without the fuel of first-time buyers, the real estate fires soon go out.

Besides, does anyone here trust the US administration? What if the CUSMA trade talks blow up next year? What if Trump politicizes the Fed? What if Putin and Xi (and Carney) tell Trump to pound salt? What’s he capable of doing then?

So, Ahmad, mortgage costs will probably decline a little, for a while. If you go VRM you might be able to switch over to fixed in a few months and get a cheaper number. Or you can opt for a three-year term – also now just over 4% – taking you close to the end of the Trump years. Between now and then there may be chaos, mayhem, bedlam, pandemonium and confusion, but your payment will be fixed, and you can look forward to the sunrise in 2028.

About the picture: “Hello, read your article and have had similar thoughts/conversations as what you wrote,” says John, who sends a picture of his Rag Doll cat incubating a pile of socks. “I felt like I was on an island with those thoughts. lol. Included is a picture of my beast.”

To be in touch or send a picture of your beast, emal to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/08/12/hard-choices-2/