Interest rate hikes have returned. But don’t expect home prices to drop
Two consecutive interest rate hikes from the Bank of Canada are expected to cool the national housing market after activity heated up in the spring, but experts warn supply is too tight for further price drops.
Citing concerns that the decline in inflation “could stall,” the Bank of Canada raised its benchmark interest rate by 25 basis points on Wednesday, mirroring a hike seen in June that ended a brief pause in the central bank’s tightening cycle.
Canada’s economy has proved hotter than the Bank of Canada expected over the first half of the year, and officials said Wednesday that a surge in housing market activity over the spring was part of the reason.
Bank of Canada governor Tiff Macklem said Wednesday that while rate hikes initially slowed activity in the housing market and in other interest rate-sensitive sectors, demand hasn’t “slowed as much as we thought (it) would.” He went on to cite housing activity ticking back up again as part of the justification for rates needing to rise and stay higher for longer.
“We have been surprised, actually, that housing has started to bounce back as quickly as it has,” he told reporters Wednesday.
The Bank of Canada wasn’t the only one surprised by the spring market.
John Pasalis, president of Realosophy Realty brokerage in Toronto, says that even with interest rates still substantially higher than they were a year previous, some markets started to resemble the pandemic-era levels of activity.
Much of that was tied to 20-year lows in inventory levels, Pasalis says, as the buyers re-entering the market had a limited supply of homes to bid on.
“We went back to a very heated and competitive market with tons of offers on homes and prices actually increased during the first half of
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