Housing Market in Focus
Experts say the Bank of Canada’s Wednesday interest rate freeze could revive the housing market, with one economist stating activity is already rising.
The central bank held its key policy rate at 5% on Wednesday and said its rate-setting talks are shifting to “how long to maintain the current restrictive stance,” rather than further hikes.
Wednesday sparked questions about whether the pause and more “dovish” central bank rhetoric could boost property market activity like in 2023.
The housing market reheated after a rate halt early in 2023, prompting the Bank of Canada to raise rates again in June and July.
In a Wednesday news conference, Bank of Canada Senior Deputy Governor Carolyn Rogers mentioned that possibility.
She said the Bank of Canada is watching risks linked with a “unexpected surge in house prices” placing “upward pressure on inflation” but not in their “base case” scenario and not influencing their decision-making.
What say economists?
On Wednesday, TD Bank chief economist Beata Caranci told BNNBloomberg.ca that the housing market was heating up before the recent rate announcement.
“I don’t think the rate hold will reignite the housing market, because we’ve already seen the housing market come back a little bit in the last couple of months,” Caranci said by phone.
Housing inflation is the “most prominent” factor holding inflation above the 2% target, according to Bank of Canada Governor Tiff Macklem.
Due to rising mortgage interest rates, rentals, and other factors, shelter service inflation remained just under 7% on Wednesday.
Ratesdotca real estate analyst Victor Tran doesn’t think the Bank of Canada’s interest rate freeze will boost house demand.
“I don’t think today’s announcement will jumpstart these buyers to buy anything. In an interview with BNNBloomberg.ca, he said sales are poor.
To BNNBloomberg.ca, DV Capital principal broker Daniel Vyner said there are “murmurs out there from realtors that it looks like things are picking up” in the home market.
Karim Buckle, Deaglo account executive and former Goldman Sachs executive director of investment banking, advised the Bank of Canada to “proceed ever so cautiously.”
He warned that interest rate cuts might “fuel a mortgage repricing wave and stoke the housing market and inflation.”
Shelter cost spike
Caranci said shelter inflation will continue for the rest of the year and that the Bank of Canada may have lowered rates if it wasn’t so high.
Caranci cited TD study that concluded “to get back to your inflation target, you still have to run the rest of the basket of everything that people buy at around zero” if shelter inflation fell to 6%.
She predicted a “deeper recession than many are predicting.”
“Everything they pointed to is telling you that inflation is lower because slack is building, but you’ve got this really stubborn child in that (shelter inflation) metric that is not going to move,” Caranci said.
Caranci says the Bank of Canada can decrease interest rates despite high shelter inflation.
However, rate decreases must be gradual. Thus, interest rates may not normalize until 2025.
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What say economists?
On Wednesday, TD Bank chief economist Beata Caranci told BNNBloomberg.ca that the housing market was heating up before the recent rate announcement.
“I don’t think the rate hold will reignite the housing market, because we’ve already seen the housing market come back a little bit in the last couple of months,” Caranci said by phone.
Housing inflation is the “most prominent” factor holding inflation above the 2% target, according to Bank of Canada Governor Tiff Macklem.
Due to rising mortgage interest rates, rentals, and other factors, shelter service inflation remained just under 7% on Wednesday.
Ratesdotca real estate analyst Victor Tran doesn’t think the Bank of Canada’s interest rate freeze will boost house demand.
“I don’t think today’s announcement will jumpstart these buyers to buy anything. In an interview with BNNBloomberg.ca, he said sales are poor.
To BNNBloomberg.ca, DV Capital principal broker Daniel Vyner said there are “murmurs out there from realtors that it looks like things are picking up” in the home market.
Karim Buckle, Deaglo account executive and former Goldman Sachs executive director of investment banking, advised the Bank of Canada to “proceed ever so cautiously.”
He warned that interest rate cuts might “fuel a mortgage repricing wave and stoke the housing market and inflation.”
Shelter cost spike
Caranci said shelter inflation will continue for the rest of the year and that the Bank of Canada may have lowered rates if it wasn’t so high.
Caranci cited TD study that concluded “to get back to your inflation target, you still have to run the rest of the basket of everything that people buy at around zero” if shelter inflation fell to 6%.
She predicted a “deeper recession than many are predicting.”
“Everything they pointed to is telling you that inflation is lower because slack is building, but you’ve got this really stubborn child in that (shelter inflation) metric that is not going to move,” Caranci said.
Caranci says the Bank of Canada can decrease interest rates despite high shelter inflation.
However, rate decreases must be gradual. Thus, interest rates may not normalize until 2025.