A likely cooling in the market will be a welcome respite from red-hot price growth, BMO economist says
The Russia-Ukraine conflict will likely send a chill over Canada’s red-hot housing market, as long as it doesn’t derail the Bank of Canada from normalizing policy, according to BMO Economics.
In its new analysis “Out of the Pandemic and Into the Fire”, BMO said that such a cooling would be a welcome respite from the market’s extraordinary pace – especially considering that, in February alone, benchmark prices saw record-high monthly (3.5%) and annual (29.2%) gains.
“Even though prices are far detached from family income in many areas, bidding wars remain relentless, with the country posting the second-best February sales on record,” said Sal Guatieri, senior economist and director of economics at BMO.
“Higher interest rates will eventually take a toll, notably on investors who are now the fastest rising share of buyers. But the main threat is that prices could keep climbing at an unsustainable pace, before higher rates have a chance to pull the market gently down to earth,” he added.
Read more: Could Russia-Ukraine change Bank of Canada path on rate hikes?
While a robust job market and an expected surge of immigrants will provide impetus over the next few months or so, “demand is likely to weaken and price growth [is likely to] simmer down,” BMO said.
This will lead to a shift in the epicentres of housing market activity in the near future, Guatieri said.
“The energy and resource producing provinces of Alberta, Saskatchewan, and Newfoundland and Labrador should outperform the national market,” the economist predicted. “Not only have they mostly avoided the explosion in house prices in the past two years, and thus remain affordable, they stand to benefit from soaring prices of oil, wheat, and potash.”
