Wednesday’s decision is the fourth time in a row that interest rates have been lowered since June. It is also the Bank of Canada’s largest rate cut since the global financial crisis in 2009, except for during the COVID-19 pandemic. “We made a bigger cut today because inflation is now back to the two percent target, and we want to keep it close to that target,” said Bank of Canada governor Tiff Macklem. Phil Soper, the president and CEO of Royal LePage, said the most immediate impact of Wednesday’s rate cut will be felt by those who have variable rate mortgages. “Housing market activity has been slow in many regions due to higher borrowing costs but today’s more aggressive cut to lending rates could cause a quick turnaround. For those with variable rate mortgages – who will benefit from the rate drop right away – or those with mortgages coming up for renewal soon, today’s announcement is very good news,” he said. Soper added that cuts to the lending rate will mean many homebuyers will “get off the sidelines & start buying.” “In turn, rising demand will cause home prices to increase more rapidly, eliminating the advantages of lower borrowing costs,” he said. “We expect an early spring market is on the way – a trend we’ve seen in previous market turnarounds.” James Orlando, director of economics at TD Bank, said, “If there’s one thing that a lot of Canadians don’t want, it’s for housing in Canada to become even less affordable.

Unaffordable Housing

It’s already unaffordable right now.” Orlando said if the Bank of Canada cuts rates too quickly, it could lead to a “recoil” response from the housing market, with prices shooting up dramatically. “It causes buyers to have this fear of missing out in the market that causes prices to start jumping up too high, and it makes housing even less affordable.” Davelle Morrison, a broker at Bosley Real Estate in Toronto, said this rate cut could be a good opportunity for first-time homebuyers and for anyone with debt, such as credit card debt or an upcoming mortgage payment. “This is a great opportunity for those people who’ve been looking to get into the market especially for first-time homebuyers where there are so many condos on the market right now for them,” she said, adding that in the Greater Toronto Area, condo sales have lagged behind single-family homes. Morrison said while Wednesday’s rate cut could spur some movement in the housing market, it is unlikely to be a “runaway situation.” She expects some prospective homebuyers would still be cautious. “Some people might wait for that next rate announcement in December. I would suggest to those people, you could go buy something now & close after the next rate cut. That way you’re getting in at a lower price but you’re taking advantage of the next rate cut,” she said.

She said another obstacle to homebuying for many in Canada is the “stress test.” Before someone borrows money from a federally regulated lender like a bank, they need to prove they can afford payments at a qualifying interest rate. This rate is higher than the actual rate in a mortgage contract. This is referred to as the “stress test.” The stress test requires borrowers to qualify for a mortgage at a rate of 5.25 percent or two percent above the contract rate whichever is higher. Borrowers need to prove they could handle higher monthly payments if the central bank rate rose rapidly. “We’ve got that new rate of 3.75 percent but buyers are still being stress tested and approved at a rate that’s two percent higher” she said. “That impacts our buying power.”

Economists suggest that the Bank of Canada may require another significant rate cut in order to accommodate slow growth.

Economists believe the Bank of Canada’s yearly economic growth forecast is too optimistic. They say another large interest rate cut will likely be needed this year to boost growth. Many economists widely expected the Bank of Canada to lower its annual gross domestic product (GDP) forecast when it released its quarterly report on Wednesday. This is because there has been a series of disappointing growth data recently.

However, the bank only revised its third-quarter growth projection downwards and kept its 2024 estimate unchanged. This surprised many economists and analysts. “The bank had a more positive view on the economy for this year” said Tony Stillo the director of Canadian economics at Oxford Economics. He said annual GDP is likely to come in below the bank’s estimate. As a result, the bank would have to cut rates by another 50 basis points in December to support the economy. In its report the bank revised down its estimate of annualized third-quarter GDP to 1.5% from 2.8% in July.

However its full-year estimate remained unchanged at 1.2%, along with no change to its 2025 projection. “If growth comes in slightly below the Bank of Canada’s forecast, it could be one factor that supports a 50 basis-point cut in December,” said Avery Shenfeld, Managing Director and Chief Economist for Capital Markets at CIBC. A bigger-than-usual cut would also bring the key policy rate to the upper end of what the Bank of Canada estimates is its neutral rate of interest. Economists say this is a prudent level where the bank can start slowing rate cuts. A neutral point is when the policy rate is neither restricting nor stimulating economic growth. “We continue to expect one more 50-basis-point rate cut from the Bank of Canada this December,” wrote Claire Fan, an economist at RBC, in a report. She added that real GDP growth was more likely to stay subdued for longer as interest rates remain restrictive until 2025.

The bank reduced its key benchmark rate by 50 basis points to 3.75% on Wednesday. Governor Tiff Macklem said he would like to see growth strengthen as inflation was largely tamed. He said the pace & timing of further reductions would depend on incoming data between now and December 11, when the bank announces its next rate decision. The bank will have two sets of GDP data – for August & September, inflation numbers for October, and two jobs reports before it makes its next decision.

Good news for the Canadian housing market! After a cautious year with rising borrowing costs, economists predict a rebound in 2024. This is largely due to forecasts that the Bank of Canada may begin cutting its key interest rate from the current level of five percent as early as the second quarter of this year. While there have been softer market conditions since the end of last summer, there are indications that the market is starting to turn around. Although price declines have mainly been an Ontario phenomenon, home prices were also starting to soften late in the year in other areas. However, prices were mostly holding firm or continuing to climb in provinces such as Alberta, Saskatchewan, New Brunswick, Prince Edward Island and Newfoundland and Labrador.

The interest rate story is one of many unknowns lingering after the calendar flipped to the new year, but economists are optimistic that a cut in interest rates will bring more activity and small increases in prices over the second half of the year. While there may not be a rapid recovery, any rate cut will spur excitement and activity in the housing market.

The Details Of Economists Foresee A Significant Turning Point In The Housing Market This Year, Coinciding With The Imminent Interest Rate Cuts

After a cautious year with changing expectations due to higher borrowing costs, economists are optimistic that the Canadian housing market will experience a rebound in 2024. This largely depends on the forecast that the Bank of Canada may begin lowering its key interest rate, currently at five percent, as early as the second quarter of this year.

TD Bank economist Rishi Sondhi stated that they are monitoring the market for signs of a turning point. Weak sales and price activity in recent months suggest that the market, at least in terms of demand, is starting to recover.

According to the Canadian Real Estate Association, the housing market has experienced softer conditions since the end of last summer, with both sellers and potential buyers taking a more cautious approach. While price declines have mainly been seen in Ontario, there are indications that prices are also starting to soften in the Fraser Valley, Winnipeg, and Halifax. However, prices in other provinces like Alberta, Saskatchewan, New Brunswick, Prince Edward Island, and Newfoundland and Labrador have either remained stable or continued to rise.

Larry Cerqua, chair of the Canadian Real Estate Association, noted that he does not expect any major headlines in the resale housing market in the next few months. This suggests a positive outcome, as a balanced and stabilizing market is desirable.

Realtor Tim Hill in Vancouver shared his optimism, stating that sentiment among his clients has gradually shifted due to modest price improvements in recent months. He believes consumer confidence will increase, and people will begin considering housing moves again in 2024.

While the Bank of Canada has kept interest rates steady in the face of moderated inflation, there is still a possibility of rate hikes. However, most forecasters expect the next move to be a rate cut. Sondhi mentioned the risk of maintaining high rates if inflation remains elevated.

Nathan Janzen, assistant chief economist at RBC, pointed out that there are many uncertainties as the new year begins. In addition to watching the central bank, he highlighted the weakening labor market as a factor affecting housing activity.

Janzen predicts that housing activity will remain slow in the early stages of 2024, but as inflation slows down, the Bank of Canada can consider interest rate cuts, which will likely lead to more activity and gradual price increases in the second half of the year. He does not anticipate a rapid recovery and expects the rate-cut process to be slow initially.

Real estate agent Anne Marie Lorusso believes that any rate cut will bring excitement and activity to the market. She expects a good spring market, where sellers will hold on to their prices, and buyers will need to carefully consider their options.

However, Hill advises his clients not to wait, even though borrowing costs are still high. He warns that once the market picks up, there will be a rush and increased competition among buyers.

Overall, economists are hopeful for a rebound in the Canadian housing market in 2024, especially if the Bank of Canada lowers interest rates.

Wrapping Up

Economists are predicting a potential rebound in the Canadian housing market in 2024, following a year of caution and shifting expectations due to rising borrowing costs. The optimism is based on forecasts that the Bank of Canada may begin cutting its key interest rate from the current level of five percent in the second quarter of this year. However, softer market conditions have been observed since the end of last summer, with sellers and buyers staying on the sidelines. While price declines have been mainly seen in Ontario, there are also signs of softening prices in other regions.

The Canadian Real Estate Association expects a stable market that leans towards a soft-landing scenario. Some realtors are already seeing increased consumer confidence and modest price improvements. The decision on interest rates remains uncertain, as the central bank has held rates steady but could potentially raise them depending on inflation levels. It is anticipated that interest rate cuts could spur activity and small increases in prices in the later part of the year. Nonetheless, the recovery is expected to be gradual, and potential home buyers are advised not to delay their purchasing decisions.

The Bank of Canada has decided to keep its benchmark interest rate at five percent, as the Canadian economy shows signs of cooling. The bank has raised the rate 10 times since early 2022 to slow down runaway inflation but has recently signaled that it may be nearing the end of that hiking cycle. Economists who monitor the central bank think it is now done with hiking, and expectations are that the bank will start to cut its rate sometime in 2024. Despite this, the bank took great pains to note that it is still willing to raise rates by even more, should the need arise.

The Details of The Bank Of Canada Maintains Its Interest Rate At 5 Percent, As Anticipated

The Bank of Canada has decided to keep its key interest rate steady at five percent, as expected. This comes after the bank raised rates 10 times since early 2022 to combat high inflation. However, recent signals from the bank suggest that it may be nearing the end of its rate-hiking cycle.

The bank’s rate affects the rates that Canadians receive on loans and savings accounts. The current rate was set in July and has remained unchanged since then, as the Canadian economy shows signs of slowing down.

The bank stated that the slowdown in the economy is reducing inflationary pressures on a wide range of goods and services. Economists believe that the bank is now finished with rate hikes and may actually begin to cut rates in 2024.

While the bank indicated that it is still willing to raise rates if necessary, some economists believe that this is just a precautionary statement to prevent markets from assuming that rate cuts are imminent.

The bank’s decision to hold rates steady was not surprising, as it marked the third consecutive time that rates remained unchanged. However, there is speculation about when the bank will start cutting rates, but the bank has given no indication of when that may happen.

Despite the bank’s statement about potential rate hikes, many economists and market watchers believe that rate cuts are more likely. They argue that the central bank will have to cut rates as the unemployment rate rises and spending in the economy declines. However, the bank wants to see further easing of underlying price pressures before making any decisions.

While financial markets predict rate cuts to start in the first quarter of next year, some commercial banks expect cuts to begin in the second half of next year. The Bank of Canada’s next rate decision will be announced on January 24th.

Ultimately, the timing of rate cuts will depend on how the economy performs in the coming months. The Canadian economy has struggled this year, weighed down by higher borrowing costs. GDP contracted in the third quarter, and the labor market has weakened.

Overall, economists anticipate a sluggish year ahead for the Canadian economy, as it adjusts to the previous rate hikes.

Wrapping Up

The Bank of Canada has decided to maintain its benchmark interest rate at five percent, as expected. The bank has been raising rates over the past year to combat inflation but has recently indicated that it may be reaching the end of its hiking cycle. The decision to keep rates unchanged was influenced by signs of a cooling Canadian economy and a reduction in inflationary pressures. Economists predict that the bank will begin cutting rates in 2024. While the bank stated its willingness to raise rates further if necessary, some believe it is an empty threat. The central bank is still cautious about the inflation outlook and remains prepared to raise rates if needed. However, there has been a shift in their messaging, with officials suggesting that the economy is approaching balance and interest rates are restrictive enough to bring inflation back to the target.

The decision to maintain the interest rate comes as the central bank observes weaker growth and a cooling job market, indicating that demand is no longer outpacing supply. While the bank has not provided hints about when rate cuts may occur, financial markets and economists expect rates to be lowered in the future due to rising unemployment and a slowdown in spending. The next rate decision and updated economic forecasts from the Bank of Canada are scheduled for January 24th. The timing of rate cuts will depend on how the economy performs in the coming months, as higher borrowing costs continue to weigh on the Canadian economy. Overall, the Bank of Canada’s decision to hold rates steady reflects ongoing concerns about inflation and a desire to restore price stability.

The Bank of Canada has decided to keep interest rates unchanged for the second time in a row, but expressed ongoing concerns about inflation risks and price pressures. The overnight target rate remains at 5.00%, and the Bank acknowledged that monetary policy is effectively curbing spending and alleviating price pressures, but it still wishes to see faster progress.

The Bank’s worries about slow progress towards price stability and increased inflation risks were also expressed, stating that it is prepared to raise the policy rate further if necessary. GDP growth forecasts were revised, and inflation forecasts were adjusted upward by the Bank. Despite today’s rate hold, more households will face higher interest rates and monthly payments as their mortgages come up for renewal.

The Details of The Rate Hold From Bank of Canada

The Bank of Canada made its anticipated decision to keep interest rates unchanged for the second time in a row today. However, the Bank expressed its ongoing concerns about inflation risks and price pressures.

As expected, the overnight target rate remained at 5.00%, meaning variable-rate mortgage borrowers will continue to face a prime rate of 7.20%.

In its statement, the Bank acknowledged that monetary policy is effectively curbing spending and alleviating price pressures, but it still wishes to see faster progress.

The statement continued to express the Bank’s worries about slow progress towards price stability and increased inflation risks, stating that it is prepared to raise the policy rate further if necessary.

Although improvements have been observed in inflation and underlying demand, economists believe it is too early for the Bank to relax its vigilant stance.

BMO’s Douglas Porter commented that price and wage growth are still too high for the Bank of Canada to veer from its hawkish rhetoric. Porter expects the Bank to maintain its current position until deep into 2024, especially without a significant rebound in growth, a surge in inflation, or a considerably weaker Canadian dollar.

TD Economics’ James Orlando agrees that the Bank of Canada is likely to keep its hawkish bias to achieve the projected economic slowdown. He noted that the Bank’s rhetoric has influenced a longer duration for its policy rate.

Consequently, the Government of Canada 10-year bond yield has reached its highest level since 2007.

GDP growth forecasts were also revised by the Bank of Canada in today’s decision, as the previous rate hikes’ effects begin to take hold. The Bank now estimates an average economic growth of around 1% for this year and next before gaining momentum again in 2025.

Inflation forecasts, on the other hand, have been adjusted upward by the Bank. Mortgage interest costs and high inflation in rent and housing expenses, along with slower normalization of near-term inflation expectations and corporate pricing behavior, have contributed to the upward revision. Core inflation measures show minimal downward movement.

Regarding household finances, despite today’s rate hold, more households will face higher interest rates and monthly payments as their mortgages come up for renewal. This is expected to impact activity and mitigate price pressures, possibly leading to rate cuts in mid-2024.

The Bank also acknowledged the impact of higher rates on overall household financial health. Measures of household financial stress have risen from pandemic lows as interest rates have increased. Non-mortgage holders are particularly affected by indicators of financial stress, and delinquency rates for various credit products, including auto loans, have increased.

The next rate decision from BoC will be held on December 6, 2023.

Wrapping Up

The Bank of Canada has decided to keep interest rates unchanged for the second consecutive time. However, the Bank remains concerned about inflation risks and price pressures. The overnight target rate will remain at 5.00%, resulting in a prime rate of 7.20% for variable-rate mortgage borrowers. The Bank believes that monetary policy is effectively curbing spending and alleviating price pressures but would like to see faster progress. It continues to worry about slow progress towards price stability and increased inflation risks and is prepared to raise the policy rate further if necessary.

Economists do not expect the Bank to relax its vigilant stance, as price and wage growth are still too high. The Bank’s hawkish rhetoric has influenced a longer duration for its policy rate, leading to the highest level of the Government of Canada 10-year bond yield since 2007.

The Bank has revised its GDP growth forecasts and now estimates an average economic growth of around 1% for this year and next. Inflation forecasts have been adjusted upward due to various factors, including mortgage interest costs, high inflation in rent and housing expenses, and slower normalization of near-term inflation expectations and corporate pricing behavior.

Despite the rate hold, more households will face higher interest rates and monthly payments as their mortgages come up for renewal, impacting activity and possibly leading to rate cuts in mid-2024. The Bank has also acknowledged the impact of higher rates on household financial health, with measures of household financial stress rising and delinquency rates increasing for various credit products. The Bank’s next rate decision is scheduled for December 6, 2023.