Housing Market Moves Despite Stagnant Mortgage Rates

The housing market has been a rollercoaster ride in recent years, with prices soaring and then cooling off, and mortgage rates fluctuating. Despite the stagnation in mortgage rates, the housing market has shown signs of movement, driven by various factors. Let's delve into the reasons behind this trend and explore the regional differences and affordability challenges shaping the market's trajectory.



Economic Growth and Updated Mortgage Rules

The economy is expected to grow at a modest pace, which will boost demand for housing. Additionally, lower mortgage rates and updated mortgage rules are allowing more buyers to enter the market. However, affordability challenges and regional differences will create an uneven recovery across the country.

In Canada, the CMHC has indicated that while the economy is expected to grow, factors like lower mortgage rates and updated mortgage rules will drive a recovery in housing sales and prices. However, affordability challenges and regional differences will create an uneven recovery. In the US, the housing market is likely to remain largely frozen through 2025, with demand remaining low and housing inventory still below historical averages. Despite this, some growth is still expected, but at a very subdued pace of 3% or less.

Regional Differences in Housing Market Performance

Regional differences in housing market performance can significantly impact overall market trends due to variations in affordability, demand, and supply. In Canada, for instance, the CMHC's 2025 Housing Market Outlook highlights that more affordable regions like Alberta and Quebec are expected to see strong sales and price growth, while high-priced markets in Ontario and British Columbia will recover more slowly due to affordability challenges and lower immigration targets.

In the U.S., regional differences are also evident. According to J.P. Morgan Research, home price growth is expected to be uneven across regions. For example, in 2025, home prices in the West are projected to rise by 4%, while prices in the South are expected to increase by 3%. In contrast, the Northeast and Midwest are anticipated to see more modest gains of 2% and 1%, respectively.

These regional disparities can influence overall market trends by creating an uneven recovery. In Canada, the stronger performance of more affordable regions could lead to a more robust national housing market, while the slower recovery in high-priced markets could temper overall growth. In the U.S., the varying pace of home price appreciation across regions may result in a more uneven national housing market recovery.

Moreover, regional differences in housing market performance can impact overall trends by influencing migration patterns. As affordability becomes a more significant factor in housing decisions, people may choose to move to more affordable regions, further driving demand and price growth in those areas. This could lead to a more pronounced divide between affordable and unaffordable regions, with potential implications for the overall housing market and the broader economy.



Affordability Challenges in High-Priced Markets

Affordability challenges play a significant role in shaping the housing market's trajectory, particularly in high-priced markets like Ontario and British Columbia. These regions are expected to experience a slower recovery due to affordability issues and the effects of lower immigration targets. The CMHC indicates that while the economy is expected to grow, factors like lower mortgage rates and updated mortgage rules will drive a recovery in housing sales and prices. However, affordability challenges and regional differences will create an uneven recovery across the country.

The slower recovery in high-priced markets is a direct result of affordability issues and the lock-in effect, which limits the supply of homes for sale. Many homeowners with lower mortgage rates are reluctant to sell their homes due to the high interest rates they would face when purchasing a new home. This lock-in effect contributes to the low supply of homes for sale, further exacerbating affordability challenges in high-priced markets.

In conclusion, the housing market is showing movement despite stagnant mortgage rates, driven by economic growth and updated mortgage rules. However, regional differences and affordability challenges are creating an uneven recovery, with more affordable regions outperforming high-priced markets. Understanding these factors is crucial for analyzing and predicting overall housing market trends, as well as for investors looking to capitalize on regional disparities and affordability challenges.