Canadian Housing Market Faces Rising Interest Rates
Canada's housing market is facing headwinds as it tries to recover from years of stagnation. The Bank of Canada (BoC) has set a tolerance limit for inflation at 3.0%, which is currently being met, leading investors to expect 5 interest rate hikes.
The market anticipates the overnight rate increasing by 125 bps, or 1.25 percentage points, pushing it to 3.5% by the end of 2027. This would be bad news for the Canadian real estate market, which has been slow due to prices being out of reach for the average household.
BMO Capital Markets disagrees with this forecast, saying that 5 hikes seem too aggressive. However, they do agree that rates will rise and mortgage relief for this cycle is over.
Robert Kavcic, a senior economist at BMO, states that 'Canada's housing market has been stable through the summer, and conditions remain balanced at the national level.' However, he also notes that volumes and prices are carving out bottoms in hard-hit markets, but the recovery will be flat with little to trigger a sharp rebound.
Kavcic warns that rising rates will put a cap on demand and higher prices over the near-term. He believes that the market is overestimating the number of rate hikes and that fixed-rate relief is coming to an end.