The Real Estate Sector Reacts to Bank of Canada’s Interest Rate Stance

The Real Estate Sector Reacts to Bank of Canada's Interest Rate Stance

The real estate sector, known for its cautious patience, is reevaluating its stance as the Bank of Canada decides to maintain the key overnight interest rate at five percent, marking the fourth consecutive hold. This anticipated move leaves market analysts and potential buyers pondering the housing market’s future.

How the Interest Rate Decision Affects Homebuyers?

Christopher Alexander, the president of ReMax Canada, welcomes the central bank’s decision, suggesting that it might rejuvenate the market, particularly enticing those who are hesitant to adopt a ‘wait and see’ approach. Alexander recalls the frenzied market activity in the early pandemic, expressing hope for a similar resurgence.

In contrast, mortgage strategist Robert McLister highlights a notable trend from the previous year where average house prices surged by 19 percent in five months following the initial rate hold. While repeating such a dramatic increase is not the general expectation, McLister advises caution, especially if mortgage rates dip into the mid-to-low four-percent range.

James Laird, co-CEO of, emphasizes the crucial role of the central bank’s future decisions. He notes that even a hint of a rate cut could exert significant upward pressure on home prices. Conversely, the absence of such signals could lead lenders to reconsider their mortgage rates in response to recent bond yield increases.

What the Future Holds for Mortgage Rates?

The Bank of Canada, under Governor Tiff Macklem, acknowledges that a spike in home prices could necessitate a revision of their interest rate policies. This stance is underscored by predictions from the Canadian Real Estate Association, which anticipates an increase in home prices for 2024 and 2025, following a modest rise in December 2023.

McLister cautions that even if the real estate market experiences a rebound, the relief in mortgage rates might not be as swift or significant as some hope. He predicts a more measured pace of rate cuts and a relatively higher floor for the lowest rates, especially if housing activity surpasses expectations and contributes to inflationary pressures.

The balancing act for the Bank of Canada is intricate, weighing the desire to stimulate the real estate market against the need to control inflation. McLister notes the tough decisions that lie ahead, particularly if the bank chooses between accommodating rising house prices or potentially impacting the broader economy by maintaining higher interest rates.

As the real estate sector navigates through these uncertain times, the interplay between the Bank of Canada’s interest rate decisions, market reactions, and the overall economic landscape will be critical in shaping the housing market’s future.