The Bank of Canada’s decision to raise interest rates for the second time is expected to have a cooling effect on the national housing market, which saw a surge in activity during the spring. However, experts are warning that the supply of homes for sale is too tight for significant price drops. Concerned about a potential stall in inflation, the central bank raised its benchmark interest rate by 25 basis points on Wednesday, following a previous hike in June. The bank’s governor, Tiff Macklem, noted that while rate hikes initially slowed down the housing market and other interest rate-sensitive sectors, demand has not slowed down as much as anticipated. He also mentioned the rebound in housing activity as a reason for the need to raise rates and keep them high for a longer period. Real estate expert John Pasalis points out that the spring market caught many people by surprise, with markets resembling pre-pandemic levels of activity. The limited supply of homes on the market led to a competitive market with increased prices. In the second quarter of 2023, home prices rebounded by 4% compared to the previous quarter. CEO of Royal LePage, Phil Soper, attributed this uptick in prices to the bank’s decision to pause rate hikes. However, experts believe that the market’s excitement has cooled off after the two consecutive rate hikes. Homebuyers who were hoping for rate cuts are now more cautious, leading to a contraction in sales. Sellers, on the other hand, may feel stuck due to stricter mortgage qualifications and limited supply, causing stress in the rental market. The Bank of Canada expects strong immigration levels and a lack of available supply to keep home prices on the rise in the coming months. Urban centers like Toronto, which is known for its immigration influx, may see the most growth in prices. Despite the challenges, experts predict that those who bought homes during the pandemic will break even on their investments this year due to the strength of the recovery. It’s worth noting that when the Bank of Canada eventually cuts interest rates, it may not lead to a housing boom, as buyers are already factoring in the possibility.
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