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Real Estate Financing

Elsa Hannaford, VP, Real Estate Finance: Tim, the housing market is not impacted by tariffs in quite the same way as other businesses. But the housing crisis is still top of mind for all of us. CIBC Economics expects a few more rate cuts, potentially by year end. How might that impact the sector?
Tim Samis, SVP, Real Estate Finance: Yeah, what we&#8217;ve seen so far in 2025, there&#8217;s not a lot of motivated buyers out there right now. And that&#8217;s true whether it&#8217;s high rise, low rise, resale, or even my own personal residence, which happens to be on the market right now. I wish that was a joke.
So why is there soft demand right now? Well, it&#8217;s a number of factors. Sure, a higher rate environment is a factor, but right now you can actually get a five-year fixed mortgage for under 4%. So it&#8217;s not bad. And relative to long-term averages, it&#8217;s pretty good. But nevertheless, a rate cut will help variable rate mortgages.
But importantly, that will not really have much of an impact on fixed rate mortgages, which are in fact driven by the five-year bond yields. And while our economist team is predicting a two-cut decrease on the Bank of Canada rate, we&#8217;re only expecting about a 15-basis-point decrease on the five-year bond yield.
So that&#8217;s issue number one. Issue number two is confidence. Consumer confidence is at an all-time low right now, or at least a 70-year low. And whether it&#8217;s trade and tariff, potential recession and job loss, or escalating global conflict, consumers aren&#8217;t really in the mood to buy a house, which is often their largest purchase.
And for the first time in a long time, there&#8217;s not confidence that real estate will be an appreciating asset class in Canada. Taking on a $1 million mortgage, when you think you&#8217;re going to have capital appreciation, which will ultimately help service the debt and repay the debt, that&#8217;s one thing. If you actually have to pay back that million-dollar mortgage, it makes it a little more daunting.
And so that dovetails with the third factor, which is really affordability. Where we are still seeing pockets of demand is for a very well-priced product, in Richmond Hill. So think townhouses, $700,000 to $800,000 in Richmond Hill. That product will move right now.
So then you ask yourself the question, will rate cuts help reduce the construction cost of new product? And they will. But if I look at most construction budgets, development charges from municipalities are double what financing costs are. So a rate cut in isolation won&#8217;t have a material impact on affordability.
So put another way, rate cuts—they&#8217;re not going to hurt. But they&#8217;re far from a silver bullet. And I think what will have a material impact, or more material impact, is Canada and the US getting resolution on a trade agreement, and putting the tariffs and economic uncertainty in the rear-view mirror as much as we can. And that&#8217;s going to really help drive consumer confidence.
Elsa Hannaford: For sure. A lot of levers that would need to be pulled. And we have a relatively new federal government that has pledged to get more housing built. What would you like to see from policymakers to get construction moving?
Tim Samis: Great question. So I think we&#8217;ve all heard that the federal government has announced a goal to build 500,000 homes. And it&#8217;s great that this is top of mind, and it&#8217;s great that there&#8217;s a lot of thought being put into this.
I would say there is scepticism in the industry, based on a lot of clients that I speak with. Scepticism because this is literally double what the current private sector is building—well beyond what the peak has always been. I think there&#8217;s some scepticism because this plan would ultimately compete with the private sector for resources, whether it&#8217;s capital and jobs.
And the question is, where would these homes go? We don&#8217;t have an abundance of vacant land or serviced land in places that people want to live. So what else could government do to really help drive building, not just building, but affordable building?
And I think there are a number of levers. First, it&#8217;s recognising that governments have had a major role in driving affordability issues in the country. But the good news is they are also in a position to help.
So take Ontario. In Ontario, the cost of a new home—about a third of that goes to tax, whether it&#8217;s development charges, assignment, land transfer, or sales tax. And so effectively, governments will generate three times what a builder would generate on margin for the sale of that unit.
So let&#8217;s break it down into development charges. Development charges are what municipalities use to fund infrastructure, which is driven by growth. So think roads, transit, water mains, sewers, parks, police stations—all of the municipal infrastructure. And so that is funded through charges onto developers for new construction, which is ultimately passed along to the new home buyer.
Effectively, the new home buyer has to fund all of the infrastructure needs of growth. And so in the US, there&#8217;s different models to do this. One really attractive model is municipal bonds. Rather than funding all of the infrastructure needs upfront on day one, cities will amortise the funding requirements over a 30-year bond, which could reduce the cost of infrastructure of new homes by about 20%.
The federal government could also make that a tax-free investment tool, which would attract a lot of retail and institutional investor appetite to that product.
Government&#8217;s also announced a cut to GST for first-time homebuyers up to $1 million. That&#8217;s great. I don&#8217;t think it goes far enough. That should really be applied to all home buyers as well.
Secondly is speed. In the US, in most markets, a multi-family building could be built in 24 months. Here, double that or potentially more. And there&#8217;s a lot of involvement from various forms of government along the whole building continuum, whether it&#8217;s zoning approvals, building inspection, or occupancy certificates. Governments really need to work with decision-makers to accelerate that whole process.
Third is, we talked about a housing shortage. Notwithstanding the market we’re in right now, we still have a housing shortage to the tune of 3 to 3.5 million, according to CMHC. That&#8217;s what we need to build to start addressing affordability.
What&#8217;s not talked about is the capital need to build those units, which could be $2 trillion. And that&#8217;s a lot of money, right? If you think about it, the eight pension funds—the Maple Eight pension funds in Canada—manage about $2 trillion. Only 25% of that is invested in Canada. So where&#8217;s the balance going to come from? It can&#8217;t be all the banks&#8217; balance sheets.
The federal government needs to create an environment where foreign capital is attracted to Canada through various tax incentives.
Another lever to pull is on immigration. We really need to drive immigration policy that attracts skilled tradespeople to Canada. Notwithstanding the market we&#8217;re in right now, there has been scarcity, and there will continue to be scarcity on trades. The expectation is about 500,000 to 700,000 tradespeople will ultimately retire in the short term.
So there are a number of levers to pull for the government. I think the levers that work best are when government partners with the private sector and doesn&#8217;t compete with the private sector. We&#8217;ve got a world-class building industry here, and the right policies and right programs will unleash that and help drive affordable growth.

Mid-year Real Estate market watch

Real Estate Financing

Tim Samis

Senior Vice-President, Real Estate Finance

CIBC Commercial Banking

Elsa Hannaford

Vice President, Real Estate Finance

CIBC Commercial Banking