For everyone who waited for the latest interest rate announcement on bated breath, the anticlimactic results may have either been a bit of a let down, or a sigh of relief. On March 6, 2024, the Bank of Canada (the Bank) announced that the policy interest rate, which was last announced at 5% in January, would once again be held at 5%.
This was its fifth consecutive hold after two interest rate hikes last summer. After several years of a significant shift, rates have now gone unchanged for months, and it’s not clear when the next big move will occur.
So, what does another period of steady interest rates mean for home buyers? What does the lack of change mean for sellers? Every situation is unique, of course, but on the whole, the news may not be all bad. In fact, the lack of a change now may be a clearer sign of a change yet to come.
Comes as no surprise
Ryan Biln, an economist from the Canadian Real Estate Association (CREA), says that it was not surprising that the overnight lending rate remained the same. According to Biln, financial markets had already priced in that interest rates would remain unchanged well in advance of the decision, especially without a drop in the core Consumer Price Index (CPI) the Bank of Canada wants to see before making any moves.
Biln explained the overnight lending rate and the inflation rate are, in effect, a bit of a cat and mouse game. The Bank of Canada has said they would seek to bring its key lending rate down once inflation looks like it’s meaningfully trending towards their 2% year-over-year growth target. However, higher inflation can be partially blamed on higher interest rates and the tighter monetary policy environment we’ve dealt with over the past two years.
The reality is that given such policies, the timeline for when we start to see the first interest rate cuts may continue getting pushed further back. The Bank expects CPI inflation to remain around the 3% mark for the next several months, and given the Bank may want to wait and see what type of fiscal stimulus is included in the next federal budget, and its affect on inflation, Biln predicts rates are unlikely to change until possibly the summer.
Buyers and sellers
So what do these stagnant interest rates mean for Canadian housing markets? We’re currently approaching a sellers’ market once again — thanks to inventory that hasn’t grown much and rising activity — as Biln notes buyers are cautiously wading back into the water. Consumer confidence also appears to be on the rise, with buyers feeling more optimistic about their own personal financial stability, Biln said, after having declined significantly over the past year.
That newfound comfort is likely to lead to an increase in buying activity. Buyers who have been on the sidelines because they worried about a significant change in their personal finances are now breathing easier. That calm is providing renewed faith to either commence a new home search, or restart one that had been on pause until conditions changed.
For sellers, they’ll likely welcome more activity on their listings. Biln said market conditions are predicted to be stronger than they were last fall — not to mention last year at this time — but not so much as the extreme market activity we saw in early 2021. However, if those same sellers are looking to upsize or upgrade on their next purchase, they too will have to consider market conditions are tight.
“It’s almost like that pause in interest rates is helping to bring back confidence in the market,” Biln added.
Final market thoughts
It’s still too early to determine what will happen to the housing market for the rest of 2024. The Bank of Canada takes the position that its policies do not determine the housing prices, although it expects to see higher prices given the increasing population nationwide that has resulted in a shorter supply.
No matter what happens, CREA is supporting Canadians by keeping close tabs on all market updates. CREA released its Q1 quarterly forecast this past January, and its Q2 forecast will come alongside another rate announcement and the budget release this April.
— REALTOR.ca