The Bank of Canada made no reference to the national housing market in its latest statement on interest rates – but will the central bank have been concerned by news of a sizeable uptick in market activity at the beginning of the year?
Data released by the Canadian Real Estate Association (CREA) in mid-February showed national home sales jumped by 3.7% in January on a monthly basis, the second month in a row that sales have increased.
Given that brisker pace of activity, the Bank’s decision not to mention concern over the housing market was a surprising one, according to RateHub.ca co-chief executive officer and CanWise mortgage lender president James Laird (pictured top).
He told Canadian Mortgage Professional that the central bank’s continuing caution on interest rates showed it was in no rush to introduce its much-anticipated first cut of the year.
“I was expecting them to specifically mention concern about the strong start to the housing market that we’ve had for the year,” he said. “I don’t think they’d be pleased to see… prices up 7% December-January, up strongly over last January.
“So I don’t think they would be pleased to see that even before they’ve cut rates, housing continues to be so red hot. And I was surprised they didn’t mention that specifically.”
When will the Bank of Canada cut interest rates?
The Bank appears to be taking a “wait-and-see” approach to rates as it continues to weigh up how economic data is playing out, Laird said, with its latest decision marking the fifth time in a row that its benchmark rate has remained unchanged.
It’s unlikely to give many clear signs that a cut is imminent until it actually begins to lower rates, he added, to stave off the risk of heating up the economy even further.
“I think we might not know the cut is happening until it actually occurs, because I think even announcing it, or that they’re thinking of it, will be the opposite of the goals that they’re trying to achieve,” he said.
That caution is partly because of the market resurgence that took place in spring of last year when the central bank strongly suggested its rate-hiking path was at an end, bringing about a spike in home sales and prices across the country.
Inflation began to jump unexpectedly as a result – and the Bank was forced to hastily bring rates higher again with a pair of summer hikes.
“In a way, I think that’s what the Bank is terrified of,” Laird said. “It was just when they announced [at the start of] 2023 that they thought they were done hiking rates, that caused a strong housing market, consumer spending to go higher than they wanted, and a surge in inflation.
“So they’ve seen that happen. Their announcement of a hold, and sort of forecasting of normal rate hikes, caused things to go [against] the way they wanted them to. My expectations are the Bank will cut later and by less than what the market is expecting.”
Is the housing market set for a busy spring?
Still, while rates are not on the wane anytime soon, the fact that no further hikes look likely means consumer confidence toward the housing market is set to continue growing.
That’s both because buyers are now used to rates at their current levels, and looking ahead in expectation that rates will be lower later in the year, according to Laird.
“I’d say a lot of people are looking at this and saying, ‘OK, rates have been like this for a little while. I understand it. I can afford it at this level,’ and looking out they’re saying, ‘OK – I can afford it, or maybe it’s a slight stretch, but it seems like the trajectory is [towards] the current rates or lower.’”
Could that mean the housing market is set for strong activity in the months ahead, or will it take the first cut for homebuying to heat up even further?
“If people are assuming what [the Bank] will do and making the decisions based on that right now, we might just have a strong spring market period, because of that sentiment and expectation,” Laird said.
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