CEO on the 'good news, bad news' scenario presented by the Bank's October announcement
Scores of homeowners across the country will have breathed a sigh of relief with the Bank of Canada’s announcement that it had once again decided to leave interest rates unchanged on Wednesday – but borrowing costs remain high with little sign of falling anytime soon.
That’s the crux of the “good news, bad news” feel of the central bank’s latest decision, Ratehub.ca CEO James Laird (pictured) told Canadian Mortgage Professional, with the possibility of future rate hikes still looming over the mortgage and housing markets following that announcement.
“The good news is they didn’t raise rates. The bad news is the Bank was adamant that they might raise rates further if inflation is stubborn, and it is tough to see any signs of rate cuts in their announcement,” said Laird.
“So it’s good that it’s not a hike, but bad in that it looks like homeowners should be planning on staying at these current rates for a good period of time.”
The October 25 deliberation means the Bank of Canada’s benchmark rate remains at 5.0%, unchanged in its last two decisions but still higher than at any other point during the last 22 years.
Uncertainty about how long those rates will remain elevated is sure to impact Canadian households, Laird said, while the housing market is already bearing the brunt of the central bank’s aggressive series of rate increases to date.
A brief market resurgence over the spring was stamped out in June and July with back-to-back quarter-point increases by the Bank.
“The sales-to-new-listings ratio is climbing and if we have another few months like that, then we’re going to have a lot of listings, a lot of inventory, and prices are starting to stop,” Laird said. “I think the spring housing market surprised the Bank of Canada. That was one of the reasons that showed them they had not done enough, which is why we got two more rate increases in summer.
“So I think the Bank will be pleased to see the slowing housing market, and I believe it’ll continue to slow in the coming months as rates stay elevated. There’s so much uncertainty.”
While the Bank of Canada is concerned about inflation, its strategy to curb it and cool the economy appears effective.
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 25, 2023
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Could the housing market heat up again?
That spring revival was spurred in large part by the central bank opting to hit pause on rate increases and using decidedly softer language on the possibility of further hikes than it had previously deployed.
While it’s chosen once again to wait and see rather than hike rates in September and October, there appears little prospect that the housing market will heat up significantly again in the months to come.
“It’s looking like… rates are now a significant enough hurdle with the stress test over 8% that buyers are saying, ‘At these rates, I’m not going to buy,’” Laird said.
That’s not to say that there’s no end in sight for the housing market’s current downturn. While rates are projected to remain at least at their current level for the foreseeable future, economists and markets see cuts ahead – likely by the second half of 2024.
Laird said the “chatter” of rate cuts could drum up demand again in the housing market once the current uncertainty on the Bank of Canada’s future path has faded.
“To me, the next step is for the consensus to believe that rate hikes are for sure off the table, and we’re not there yet,” he said. “So that would be the next step – for people to think, ‘OK, no more rate hikes.’
“And then the next step after that is to start to anticipate rate cuts on the horizon, and even them being on the horizon might be enough. But there are just so many other factors at play because rate cuts are on the horizon – does that mean we’re in a recessionary-type environment? That causes people to sit on the sidelines as well.”
Policymakers increasingly inclined towards lower home prices
The tone of policymakers on Canada’s housing market has seen a marked shift in recent times, with Laird noting their apparent preference for lower over higher prices.
“It’s not necessarily the goal of the Bank of Canada or others to heat the housing market up anytime soon,” he said. “They’re on record saying lower home values is a good thing – so maybe different than 5-10 years ago where most policymakers would say a small percentage increase in home values is probably a good thing.
“Most are saying that they would prefer home prices drop from here, which is an interesting and unusual thing to think about.”
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