The Bank of Canada’s decision to keep its key overnight interest rate steady at five per cent for the fourth time was widely expected by the real estate sector, but whether it will be enough to bring buyers back to the market remains up for debate. vernor Tiff Macklem says Canada has made some progress on slowing inflation but did not offer a timeline for when interest rates might come down.
“Last January we saw CREA’s average home price rocket 19 per cent in just five months following the bank’s first rate pause. That’s an extraordinary move,” McLister said. “Will we see the same this spring? It’s not the expectation but if mortgage rates slide into the mid-to-low-four-per-cent range, I sure as heck wouldn’t bet against it.” -Mortgage strategist Robert McLister.
James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender, said if the central bank had revealed specifics about a cut, that would have jump-started the housing market. “Any indication of rate cuts from the Bank of Canada would have put upward pressure on home prices immediately,” he said. Without them, there could be a shift in the opposite direction, given that lenders had been holding off raising mortgage rates after the recent rise in bond yields. “Lenders will consider moving fixed rates higher since there is no new information from the bank,” Laird said.
One factor working against a prolonged surge in home prices could be the Bank of Canada itself: Central bank governor Tiff Macklem said a jump in home prices could induce the bank to renew its interest rates hikes.
According to the Canadian Real Estate Association (CREA), home prices are forecast to rise in 2024 and 2025, after the MLS Home Price Index (HPI) ended 2023 up 0.7 per cent in December. The average price was also up 5.1 per cent over the previous December to $657,145.
Should there be a resurgence in the real estate market, McLister said rate relief would likely be more gradual. “If housing activity sizzles more than expected, mortgage rates could remain at a higher altitude, for longer. That doesn’t mean prime rate will hold at 7.20 per cent, but it would imply less rate relief ahead,” he said. “The pace of cuts could be slower and the trough in rates could be higher.”
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