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Jul 14, 2023
, BNN Bloomberg
Following a move by the Bank of Canada to increase its policy rate this week, one real estate developer said the latest rate hike provides a sense of certainty to the market, which he thinks will heat up once interest rates stop moving higher.
Barry Fenton, president and chief executive officer of Lanterra Developments, said in a panel discussion with BNN Bloomberg Wednesday that interest rates are not the “full driver” of the real estate market. He said that he was “actually pretty happy” that the recent rate hike brought certainty.
On Wednesday, the Bank of Canada delivered a 25 basis point increase to its policy rate, bringing it to five per cent. The move marked the highest point for the Bank of Canada’s interest rate in 22 years.
Fenton said even if rates were increased by one per cent this week that “as long as we knew that there was certainty in the market and we were done, I think the market will continue to do very well.”
“I think that once we stop the interest rate increases, or at least people think that there's certainty, we're going to be way on fire,” he said.
Part of Fenton’s optimism in the real estate sector has to do with historically large population increases.
According to Statistics Canada, the nation’s population increased by an estimated 292,232 people between Jan. 1, 2023 and April 1, 2023.
Robert Kavcic, a senior economist at BMO Capital Markets, said in the panel Wednesday that Canada has a strong supply and demand relationship that supports Canada’s housing market.
“I would completely agree that fundamentally we have an extremely strong supply and demand situation in Canada and specifically Ontario, underpinning the housing market,” he said.
“And that's why it's really hard to drive a material long-term correction because there is that fundamental demand there.”
Kavcic said that the country “just cannot build enough, especially single detached,” but there was a problem in leaving interest rates at levels which were “far too accommodative” during 2021. He said this caused “a lot of froth to build up on top of that fundamental base,” but higher interest rates over that last year and a half have “taken that froth out of the market.”
“So we're at a level where rates are closer to where they should be, maybe a little bit on the restrictive side, that froth has gone and the market has rebalanced itself based on those underlying fundamentals,” he said.
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