Veteran economist lays out near-future possibilities
The Bank of Canada’s December 7 rate announcement is “likely” to be the last oversized hike in the rate-adjustment cycle that began this year, according to economist Sherry Cooper (pictured).
This is because the housing market is now showing signs of greater-than-expected cooling in the wake of these increases.
“Canadian benchmark home prices are already down nearly 10% nationwide,” Cooper said. “Several chartered banks told us this week that more than 25% of the remaining amortizations for their residential mortgages are 35 years and more.”
These dynamics have substantial implications come renewal time.
“At renewal, these institutions expect to grant mortgages amortized at 25 years, which implies a substantial rise in monthly payments,” Cooper warned. “That may well be three or four years away, but clearly, many households could be pinched unless mortgage rates plunge in the interim.”
What are the expected rate adjustments in 2023?
With the central bank’s next meeting scheduled for January 25, the Governing Council is likely to take a closer look at economic data that will be available until then.
“Whether they raise rates will be data-dependent,” Cooper said. “If they do, it will likely be by 25bps. Even if they pause at that meeting, it does not rule out additional moves later in the year if excess demand persists.” I expect further monetary tightening, the continued bear market in equities, and a further correction in house prices.
Cooper said that she is not anticipating the BoC’s policy rate to revert to the pre-pandemic level of 1.75% any time soon “because inflation back then was less than 2%, an improbable circumstance as we advance,” she said. “Although supply constraints may be easing, globalization has peaked. Semiconductors produced in the US will not be as cheap, and many rents, prices, and wages will be very sticky.”
