Real estate sector breathes sigh of relief as BoC holds rate at 5%

Houses for sale in Ottawa

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Canada’s slowing real estate sector has been granted something of a reprieve by the Bank of Canada, after the central bank chose to hold its policy interest rate at five per cent after casting a chill over the housing market with two consecutive rate hikes to start the summer.

“With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, governing council decided to hold the policy interest rate at 5 per cent and continue to normalize the Bank’s balance sheet,” the central bank’s governing council said in a statement on its website.

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The Sept. 6 announcement, however, did not take further rate hikes off the table. The governing council said it would remain vigilant against persistent inflationary pressures, and affirmed its readiness to adjust the policy interest rate if deemed necessary.

Mortgage strategist Robert McLister cautioned that the Bank of Canada’s warning should not be dismissed.

“If consumer inflation expectations tick meaningfully higher, I have no doubt the Bank of Canada will hammer them back down with at least another quarter-point hike, despite a shrinking economy,” McLister said in an email. “That’s not my prediction, but it’s a distinct possibility.”

Pritesh Parekh, a realtor in Toronto, said the rate hold would give many in the housing sector a much-needed respite.

“There’s a lot of people exhaling right now,” Parekh said. “They were holding their breath and were really stressed out about this because these rates have been really tough for some people to handle.”

Adil Dinani, a realtor at Royal LePage West in Vancouver, said that while the relief was palpable, the rate decision isn’t a game-changer.

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“I think there is a sense of relief. Does it change the current situation? Not really,” Dinani said. “Perhaps it provides a glimmer of hope that we’re nearing the end of this rate hiking cycle. I still believe we’re beginning to see some cracks in the real estate market, especially from those ‘mom and pop’ investors, less seasoned in the field, who can’t sustain their properties with a seven per cent interest rate.”

Alex Leduc, chief executive of Perch, a digital mortgage consultancy in Toronto, said the Bank of Canada was right to wait and see how things play out after raising its benchmark rate 10 times since 2022.

“There is a real risk of hiking too much, and causing unnecessary economic pain,” Leduc said. “Our rate outlook suggests that mortgage rates will hold steady into the first half of 2024, then start decreasing well into 2025.”

Leduc and McLister both noted that variable-rate mortgage holders would be pleased with the outcome.

“With a rate hold, adjustable and variable mortgage holders can expect no increases to their mortgage payment. A small relief, although the wait continues for the Bank of Canada to start cutting rates,” Leduc said.

McLister added that the rate pause saved an average floating-rate borrower up to $70 in increased monthly payments, based on the average Canadian mortgage amount of $351,692.

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