Still, there's a caveat…
In a Tuesday address to the Montreal Council on Foreign Relations, Bank of Canada governor Tiff Macklem shared insights on the future of Canada's housing market, suggesting a rebound is on the horizon for this year. However, he underscored that recovery is far from certain.
This comes after a period of contraction in the housing market throughout 2023, largely influenced by higher interest rates. It can be recalled that the BoC has kept its policy rate steady at 5.0% after a series of hikes aimed at cooling inflation. This high interest rate environment has made it more challenging for prospective homebuyers, reducing demand within the market.
Despite these challenges, the BoC’s latest monetary policy report forecasts a revival in the housing sector for 2024, anticipating a 0.4-percentage-point increase in real gross domestic product tied to housing—a notable recovery from last year's 0.9-percentage-point contraction. Macklem projected a "modest increase" in home prices compared to the decline seen in 2023, but he admitted the outcome would heavily depend on the market's activity level this year.
"There’s certainly considerable uncertainty around what will happen to prices, and it’s going to obviously reflect the response in demand," Macklem said.
Read next: Supply shortage, not interest rates, causing housing crisis – Macklem
With some experts hinting at possible interest rate cuts as soon as April or June, Macklem reiterated the central bank's approach of waiting for clear signs of easing inflation before making any moves.
The BoC fears acting too soon could reignite inflation in the housing market. These concerns were evident in the minutes from its interest rate decision on December 6, 2023, highlighting worries about a premature housing market rebound fuelling further price pressures.
As the BoC prepares to release more details from its January 24 rate decision, Canadians are awaiting further guidance on the economic direction.
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