Moody’s has revised its outlook for Canada’s housing market, now anticipating only modest price gains in 2027. The credit ratings agency attributes this sluggish recovery to a weaker labour market, higher inflation, and rising borrowing costs, which are collectively limiting affordability. Additionally, a slowdown in homebuilding is constraining new supply, which, despite helping to firm prices, is not enough to drive significant growth.
The report also highlights the impact of rising global bond yields, partly driven by corporate demand for debt to finance artificial intelligence development. Tech giants like Google parent Alphabet, Meta, and Amazon have issued nearly US$220-billion in bonds this year, more than double the amount from 2025. This surge in corporate bond issuance has pushed up yields for government bonds, which in turn affects fixed mortgage rates.
In Canada, the five-year bond yield has reached two-year highs, pushing five-year fixed mortgage rates into the mid 4-per-cent range. Financial markets are also anticipating further interest rate hikes from the Bank of Canada in 2027, which would increase the cost of variable-rate mortgages. Bond swaps markets have priced in up to three more rate hikes by the third quarter of 2027.