Bank of Canada comments offer light at the end of the tunnel for real estate, mortgage markets, experts say

  1/26/2023 |   SHARE
Posted in Mortgages and Real Estate by Sheru Asnani | Back to Main Blog Page

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Central bank signalled it would put the rate hiking cycle on pause - at least for now

Canada’s struggling real estate sector is breathing a sigh of relief, but it wasn’t so much the size of the Bank of Canada’s Jan. 25 rate hike as the language that came with it that was cause for optimism.  

That’s because while the central bank boosted its benchmark overnight interest rate by 0.25 basis points to 4.5 per cent, its eighth consecutive increase, it also signalled it would put the hiking cycle on pause — at least for now.  

“A 25-basis-point increase or no increase was what we needed, along with the kind of language … that indicated we were essentially where we needed to be” Royal LePage CEO Phil Soper said in an interview. “What’s important at this stage is that we’ve clearly come to a point where interest rates aren’t going to be in the news.” 

Soper said the realization that rate hikes will be stopping or slowing should draw what he called the “missing transactions” — those with the capacity to buy but who have remained on the sidelines — back into the market, though it may take some time. 

Those buyers, he said, have been reluctant because they understand the link between rising rates and prices, and “they don’t want to buy a house today that will be worth less tomorrow.” 

Having some price certainty will make it easier for them to enter the market, but they’ll still need to be comfortable knowing they are paying five or six per cent on their mortgages while others are locked in at two per cent.  

“There’s still many, many people out there with two per cent mortgage rates. Your sister or your cousin might have a two per cent mortgage rate but you’re going to have to pay five,” Soper said. “This will harm consumer confidence until the market has more time to adjust to it.” 

As a result, he said he saw a “muted recovery” in the cards for the spring. 

The pause also signals a light at the end of the tunnel for variable-rate holders, according to James Laird, Co-CEO of and president of mortgage lender CanWise, even if it means another dose of short-term pain. 

“Anyone who currently has a variable-rate mortgage or home equity line of credit (HELOC) will see their rate increase by a quarter point, bringing the sum of their total rate increases in the last 12 months to 4.25 per cent,” Laird said in an email. 

“The good news is that they can expect the rate hikes to pause and possibly be over as long as inflation tracks in the right direction. With this latest rate hike, more Canadians have reached their trigger rate, which means their existing mortgage payment is no longer covering their monthly interest.” 

Real estate prices and sales have suffered throughout the Bank of Canada’s hiking cycle. 

According to the Canadian Real Estate Association, benchmark prices fell 13 per cent from February 2022 through December. 

Total sales also declined in 2022 as compared to 2021. In December 2022, for example, the number of non-seasonally adjusted transactions was down 39 per cent compared to December 2021.

Source: Financial Post

Bank of Canada, Bank of Canada Benchmark Rate, First Time Home Buyers, Home Buyers, Interest Rates

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