Canada’s new housing price index for June 2025 recorded a decrease of 0.2%, matching the same decline from the previous month.
Over the past year, the index has experienced a 1% drop. In June 2024, the index was at 124.7, compared to its current level of 123.4.
Implications For Bank Of Canada Policy
Based on the data from Michalowski, we see the persistent weakness in the Canadian housing market as a clear signal for future Bank of Canada policy. This continued price decline reinforces the argument that the central bank will have to continue easing monetary policy. Consequently, we believe the probability of another interest rate cut in the next quarter has significantly increased.
This housing data doesn’t exist in a vacuum; it aligns with broader economic cooling. The most recent jobs report showed the unemployment rate rising to 6.2%, while headline inflation has fallen to 2.7%, comfortably within the central bank’s control range. These figures collectively support a more dovish policy path to stimulate the economy.
For us, the most direct response is to position for a weaker Canadian dollar. We would look to buy call options on the USD/CAD pair, as a more accommodative Bank of Canada will likely cause the currency to depreciate against the U.S. dollar. This trade anticipates the widening interest rate differential between the two countries.
Historical Context And Strategic Moves
Historically, the central bank has reacted decisively to housing downturns. During the slowdown of 2018-2019, policy makers paused hikes and adopted a dovish tone which provided a floor for the market. We anticipate a similar, if not more aggressive, response now, given that rate cuts have already begun.
This environment could also negatively impact the profitability of Canada’s largest lenders through slower mortgage growth. A strategic move would be to consider buying put options on a Canadian banks ETF, such as ZEB. This position would profit from any downturn in the financial sector linked to the real estate slowdown.
