How will the Bank of Canada’s rate hold impact the housing market? – BNN Bloomberg

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The Bank of Canada’s decision to hold interest rates on Wednesday could reignite the country’s housing market, experts warn, with one economist saying activity is already starting to tick higher. 

The central bank elected to hold its key policy rate at five per cent on Wednesday, and in a change of tone, said its rate-setting discussions are shifting towards “how long to maintain the current restrictive stance,” and away from talk of further hikes.


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Questions were raised Wednesday about whether the hold, along with more “dovish” rhetoric from the central bank, might spur an increase in housing market activity, similar to the pattern that emerged in 2023.

A rate pause early in 2023 prompted reheating in the housing market, which in turn spurred the Bank of Canada to hike rates yet again in June and July. 

Bank of Canada Senior Deputy Governor Carolyn Rogers addressed that possibility in a news conference on Wednesday.

She said the central bank is monitoring risks associated with an “unexpected surge in house prices” putting “upward pressure on inflation” – though she noted that the risk is not in the Bank of Canada’s “base case” scenario, and is not driving their decision-making at the moment. 

What do economists say?

Beata Caranci, the chief economist at TD Bank, told BNNBloomberg.ca on Wednesday that the housing market was already heating up, even before the latest rate decision.

“I don’t think the rate hold will reignite the housing market, because we’ve already started to see the housing market come back a little bit in the last couple of months,” Caranci said in a telephone interview.

Bank of Canada Governor Tiff Macklem identified housing inflation as the “most prominent” part of the economy keeping inflation above the two per cent target. 

On Wednesday, he said inflation in shelter services continues to run just under seven per cent, due to elevated mortgage interest costs, high rents and more.  

Ratesdotca real estate expert Victor Tran said he doesn’t think the Bank of Canada’s decision to hold interest rates will create more demand for housing. 

“I don’t think it’s going to push these buyers off the sidelines and get them to rush to buy anything based on today’s announcement. Sales activity is still very low,” he told BNNBloomberg.ca in an interview. 

Daniel Vyner, principal broker at DV Capital, told BNNBloomberg.ca that there are “murmurs out there from realtors that it looks like things are picking up” in the housing market.

Karim Buckle, account executive at Deaglo and former executive director of investment banking at Goldman Sachs, said the Bank of Canada will have to “proceed ever so cautiously.”

In a written statement, he pointed to risks that any reductions in interest rates could “fuel a mortgage repricing wave and stoke the housing market and inflation.” 

Shelter inflation

Shelter inflation will continue to be an issue for the remainder of the year, Caranci said, adding that if it wasn’t trending so high, the Bank of Canada may have already been in a position to lower rates. 

Caranci referenced TD analysis that found if shelter inflation cooled to about six per cent, “to get back to your inflation target, you still have to run the rest of the basket of everything that people buy at around zero.”

 She said this would likely result in a “deeper recession than many are predicting.” 

“Everything that they pointed to is telling you that the trajectory for inflation is lower because slack is building, but you’ve got this really stubborn child in that (shelter inflation) metric that is not going to be moving,” Caranci said. 

Elevated shelter inflation doesn’t mean the Bank of Canada can’t lower interest rates, according to Caranci.

But it does mean the speed of rate cuts will need to be gradual. As a result, she said interest rates are unlikely to normalize until 2025. 

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