The latest interest-rate increase by the Bank of Canada to five per cent, the highest it has been since 2001, is not helpful for the real estate industry.
The nature of the preliminary market response and the discussions in the last couple of weeks among experts has left the impression that interest rate are maxed out so there doesn’t seem to be a sense of thinking house prices will drop.
Throughout Canada, and particularly in Metro Vancouver, there is an ongoing and long-term shortage of housing. The more aggressive buyer activity from spring has levelled off during the summer, and what remains is more of the “life goes on” kind of market.
The latest increase was .25 per cent, once again, the 10th time the Bank of Canada has raised rates since 2021 in its intent to fight inflation. Whenever there’s an addition to this ongoing story, News From Nexus posts professional reactions, such as these:
The Financial Post:
“Credibility is hard to earn but easy to lose. After losing quite a bit of it over the past year, the Bank of Canada is working hard to get it back. Governor Tiff Macklem’s decision…and leave the door open for even more hikes, is in part an effort to restore public confidence in the central bank’s commitment to its two per cent inflation target. He sought to reassure Canadians the Bank is trying to find the right balance between controlling inflation and not over-tightening. But overdoing it is probably the more likely outcome.”
B.C. Real Estate Association:
“The Bank cited the recent easing of inflation to 3.4 per cent but also noted that core inflation continues to run at a 3 to 4 per cent pace and has been more persistent than anticipated. The Bank now forecasts a return to its 2 per cent target in mid-2025 rather than in 2024. While inflation has come down significantly…the economy seems somewhat impervious to the Bank's efforts to slow it down. The labour market continues to add jobs at a robust pace, consumer spending was brisk during the first quarter and the housing market remains unexpectedly strong. Although the impact of rate increases can take time…we should be seeing some signs of a slowing economy emerge relatively soon. However, the likelihood of an impending recession and a related fall in interest rates now seem to fading, meaning homebuyers and homeowners may need to wait until next year for any mortgage relief…and further rate increases could be on the horizon if the economy continues to out-perform expectations.”
The next scheduled date for a Bank of Canada rate announcement is September 6