Mortgage volumes won't recover until late 2026, and even that assumes rates cooperate
Morningstar DBRS put a date on the turnaround this week: second half of 2026. That's eighteen months from now, and it comes with a condition the agency made explicit, rates have to stay cooperative. Cooperative means the Bank of Canada continuing its easing cycle without reversals, bond yields staying range-bound, and no inflationary surprises that force a hawkish pivot. Those are not small assumptions.
The stabilization everyone keeps referencing is real but thin. Housing activity has stopped falling, which is not the same as rising. Sales volumes in most major markets are sitting 15 to 20 percent below long-run averages. Listings have picked up in Vancouver and Toronto, but inventory is moving slowly, and days-on-market figures are stretching into territory that suggests buyers are not feeling urgency. When a market stabilizes at a depressed level, calling it a recovery is premature.
Why eighteen months matters
The timing is not arbitrary. Morningstar DBRS is modeling around mortgage renewal waves. Roughly 2.2 million Canadian mortgages will renew between now and the end of 2026, and the bulk of those are fixed-rate products originated between 2020 and early 2022 at rates below 2.5 percent. Most of those borrowers are renewing into the mid-4s or higher, which is a payment shock in the range of $400 to $700 a month on a typical $500,000 balance. That shock hits spending power, but it also creates churn. Some of those renewals will trigger moves, downsizing, relocating for work, breaking to refinance, and churn drives volume.
The problem is that churn-driven volume is not demand-driven volume. One creates transactions because people have to move. The other creates transactions because people want to move, can afford to move, and see housing as a worthwhile use of capital. The second type of volume is what a healthy market runs on, and that is what remains missing.
The regional split deepens
Affordability pressures are not evenly distributed, and neither is the weakness. Alberta continues to outperform, with Calgary and Edmonton seeing modest year-over-year gains in both sales and starts. That is oil-sector wage growth doing what it does. Ontario and British Columbia are the opposite story. The Greater Toronto Area has seen new listings rise 12 percent since January, but absorption has not kept pace. Prices are flat to slightly down depending on the segment, and anything priced above $1.5 million is sitting.
Vancouver's detached market is effectively frozen above $2 million. Buyers with that kind of capital are waiting, because they can. Waiting costs them nothing when prices are not rising and rates might fall further. Sellers, meanwhile, are holding where they can, which keeps inventory tight in the sub-$1 million range and creates a strange two-tier market where the bottom moves and the top does not.
What cooperative actually means
The entire Morningstar DBRS forecast hinges on rates continuing to ease. The Bank of Canada has cut 175 basis points since June 2024, and the market is pricing in another 50 to 75 basis points by mid-2026. If that happens, five-year fixed rates should settle somewhere in the low 4s, and variable rates could dip below 4 percent. That is cooperative.
What is not cooperative: inflation re-accelerating because fiscal policy stays loose, or because the Canadian dollar weakens enough to push import costs higher, or because wage settlements in the public sector start feeding through. Any of those forces the Bank to pause or reverse, and the mortgage market stays stuck. Volumes do not recover when the direction of rates is unclear. They recover when borrowers believe rates have peaked and are heading lower with conviction.
The second half of 2026 is not far away. It is also not guaranteed.
