Housing market experts said a forecasted pause to the Bank of Canada’s (BoC) monthslong interest rate tightening cycle offers some hope as the impact of consecutive rate hikes sink in deeper for homeowners and interested buyers.
On Wednesday, the Bank of Canada hiked its key policy rate by 25 basis points to 4.5 per cent – the highest level in 15 years. The Canadian central bank indicated it would pause its hiking cycle if economic conditions remain stable, as it pursues its goal of bringing decades-high inflation back to a target level of two per cent.
Mortgage strategist Robert McLister of MortgageLogic.news said the latest hike is essentially the limit of what some borrowers can handle, and the Bank of Canada appears to understand that.
“Today's news is going to give borrowers hope,” McLister said in a phone interview on Wednesday with BNNBloomberg.ca
“The (central) bank believes this is as much tightening as we need to get inflation back on track, and everyone who's got a mortgage should hope they’re right.”
Atul Chandra, chief financial officer of HomeEquity Bank, said the end of the interest rate hikes signals good news for the housing market.
“For me the takeaway was that if economic conditions evolve in the way as the Bank of Canada expects, then they will be on hold for some time, which will be a positive for the economy,” he said in a television interview with BNN Bloomberg on Wednesday.
Chandra said interest rates are already affecting the housing market – a sector that typically feels some of the first impacts of interest rate policy – but it’s a “positive” that the central bank could be at the end its eight-month hiking cycle.
Still, experts predicted some negative impacts will likely still play out in the coming months as the housing market absorbs the higher rate, including some homeowners being forced to sell.
While “no one wants to see a rash of ‘for sales’ in the housing market,” McLister said, it’s almost certain that will happen to some degree as it historically does during a recession and high interest rate environments as people lose their jobs.
“It's a guarantee that a minority of homeowners with a mortgage, particularly a floating rate mortgage, are going to have to sell because they can't make their payments,” he said.
John Pasalis, president and broker at Realosophy Realty Inc., said some homeowners with debt from home equity lines of credit (HELOCs) are already feeling pressure from the current conditions.
“We're starting to hear from some households, some investors who are financially stretched, the ones that are very leveraged, and some of them might need to sell their homes, they may not be able to renew or get a mortgage again,” Pasalis said in a phone interview on Wednesday.
Another unknown variable in the mix is when exactly the central bank will start cutting interest rates as inflation comes down.
McLister noted that the bond market is already pricing in an interest rate cut for October, but Bank of Canada Governor Tiff Macklem warned Wednesday that it’s still too far too early to discuss cuts.
“I think people should take him (Macklem) seriously,” he said, noting that global economic conditions remain unpredictable. “You have to prepare for an adverse future, particularly if you're a borrower that is living close to the edge.”
Pasalis said he will also be watching five-year lending rates and bond market movement, which could impact demand “more so than the Bank of Canada’s policy rate.”
“If we started to see some downward pressure, that could kind of drive a little bit more demand in the market, even before the Bank of Canada cuts,” he said.