Experts anticipate a rise in Canada’s home prices this year, with expectations of further increases in 2025, according to Reuters. This prediction comes amid continuous strong demand for housing and a notable lack of new supply, coupled with the likelihood of interest rate cuts later in 2024.

The surge in Canadian home prices by over 50% during the pandemic was fuelled by exceptionally low interest rates and a scramble for more spacious living by homeowners. However, a subsequent 14% drop from the peak in early 2022 highlighted a cooling period. This cooling, in the face of an ongoing housing shortage, was attributed to the dampening effect of higher mortgage rates and steep prices, which sidelined many potential buyers.

Lately, a slight dip in mortgage rates—spurred by expectations of the Bank of Canada trimming rates after its aggressive hikes—has nudged some buyers back into the market. A Reuters poll involving 17 analysts predicts a modest 1.2% increase in average home prices this year, following a 5.5% decline last year, with an anticipated 3.3% rise in 2025.

“This winter’s renewed market vigour is making it a more competitive environment for buyers… we think a pivot towards rate cuts mid-year will get the wheels turning faster over the second half, perhaps even sooner,” Robert Hogue, assistant chief economist at RBC, told Reuters.

“There will be a lot of pent-up demand to satisfy once confidence returns, which could heat things up in a hurry. However, poor affordability conditions will restrain the recovery and make it a gradual liftoff.”

All eyes in the mortgage world will be on the Bank of Canada next week as the central bank reveals its much-anticipated decision on interest rates – but those holding out hope for a rate cut are likely to be left disappointed.

The Bank is widely expected to begin trimming its benchmark rate this year but while some observers believe a spring cut could still be in the offing, few believe next week’s announcement will mark the beginning of that path.

A new analysis by Desjardins Group suggested the central bank “should begin cutting interest rates around the spring,” although chief economist Jimmy Jean told the Financial Post that April is probably the earliest a rate drop will occur.

Recent indications of a still-strong labour market may have given the Bank of Canada pause for thought on its rate-cut timeline, even if overall inflation fell by more than expected at last reading to 2.9%.

Keith Reading, senior director of research at real estate firm Morguard, told Canadian Mortgage Professional that while economic factors largely appear to be trending in the right direction for the Bank, they will likely be eager to pour cold water on the prospect of an unexpected uptick in economic activity.

“Right now, I think the Bank of Canada is hinting that rate cuts might be a little further off than first anticipated,” he said. “There were a lot of people thinking the spring or summer of this year. But I think the Bank is sort of [indicating], ‘Hold on – it may be a little bit longer.’

“Part of that is we’ve had a pretty good job growth figure to open January, and inflation has certainly come down. But we’re still not at the 2% target that the Bank likes – so it may take longer for rates to come down.”

How much will the Bank of Canada eventually cut rates by?

Desjardins’ outlook calls for five 25-basis-point cuts to both the Canadian and US overnight rates in 2024, with further declines expected to take place next year. Reading said he’s expecting a cautious approach from the central bank, although the onset of cuts is likely to help boost investor confidence and bring them off the sidelines.

“I’m of the opinion that the Bank, as it’s done historically, will be careful and conservative. I don’t think we’re going to see a 50-basis-point drop in the Bank’s policy rate immediately,” he said.

“I think you might see a 0.25% drop, and then much more gradual cuts. But I think once they do start to come down, you’ll see investor confidence pick up and it should kick off what investors are looking for: stability in terms of interest rates, and what the debt market’s going to look like.”

March rate hold likely – but April could be a different story

Against that backdrop, the Bank’s most likely course of action in next week’s announcement is another rate hold, which would mark a fifth consecutive decision with no upward change.

Still, that better-than-expected January inflation data has helped boost market confidence that an April cut could be on the way.

Money markets’ expectations of an April rate drop soared to 58% in the wake of last Tuesday’s (February 20) consumer price index (CPI) reading, up from 33% prior to the news.

The central bank last slashed its policy rate, which leads variable interest rates in Canada, at the onset of the COVID-19 pandemic – cutting that trendsetting rate to a rock-bottom 0.25% in March 2020 as the economy reeled from shutdowns and global uncertainty.

That rate remained unchanged for nearly two years, with ultra-low borrowing costs helping herald a housing market boom as borrowers rushed to take advantage of access to cheap credit, before the Bank began hiking again in 2022 amidst surging inflation.

Bank governor Tiff Macklem hinted at the end of last year at possible rate cuts coming down the line in 2024 – but refused to be drawn on a potential timeline.

Source CMP
By Fergal McAlinden

Canada’s inflation rate for January eased to 2.9%, a drop beyond economists’ expectations, potentially paving the way for the Bank of Canada (BoC) to consider rate cuts as soon as June. Economists have analyzed the latest figures and shared their insights.

According to Olivia Cross, a North America analyst at Capital Economics, the BoC will be pleased to see improvements in its measures of core inflation. Core inflation, excluding food and energy, only increased by 0.1% month-over-month, a deceleration from December’s 0.3% gain. The BoC’s preferred measures, CPI-trim and CPI-median, both slowed to 3.4% and 3.3%, respectively.

However, Cross advises caution, emphasizing the BoC will be monitoring whether this deceleration will continue before considering rate cuts. Capital anticipates the first rate cut to occur at the central bank’s June 5 meeting, according to the Financial Post.

Andrew Grantham from CIBC Economics observes that elevated interest rates are affecting consumer spending, as evidenced by significant declines in airline fares and clothing prices. Grantham notes a potential rebound in inflation but predicts a first-quarter rate of 2.9%, below the BoC’s forecast.

“So even with GDP growth running somewhat stronger than they expected, we still anticipate that interest rate cuts will start in June,” Grantham said.

Abby Xu of RBC Economics highlights a decrease in inflation acceleration and expects shelter inflation to persist due to higher mortgage rates and housing shortages. This persistent inflation presents challenges for the BoC’s 2% target. Likewise, Xu anticipates the BoC to start lowering interest rates by mid-year.

National Bank of Canada economists Matthieu Arseneau and Alexandra Ducharme attribute the 6.2% annual surge in shelter costs to elevated mortgage interest rates and rising rental prices driven by population growth. They anticipate continued pressure on the economy and labor market due to restrictive monetary policies, maintaining their forecast for a first interest rate cut in June while acknowledging increased prospects for an April adjustment following the latest report.

Charles St-Arnaud of Alberta Central believes it’s premature to declare victory against inflation, emphasizing the importance of core inflation remaining below 3% for sustained periods before considering rate cuts. “We continue to believe that the BoC is unlikely to contemplate rate cuts until inflation has been brought sustainably below three per cent,” he said. “With this in mind, a cut in June looks like the most probable timing.”

Overall, while the January inflation figures provide some relief, economists remain cautious, noting the importance of sustained trends and core inflation metrics.

Source CMP
By Jonalyn Cueto

Canada’s inflation rate slowed by more than expected in January, with the consumer price index (CPI) rising at an annual pace of 2.9% last month and ticking downwards from December.

New data released by Statistics Canada on Tuesday showed that annual price growth came in lower than the 3.3% expected by economists in a Bloomberg survey, dropping from 3.4% the previous month in a further sign that Bank of Canada rate hikes to date are having their desired impact.

The headline rate of inflation is now inside the central bank’s target range, the first time it’s achieved that since June, with expectations for interest rate cuts down the line now likely to intensify.

The core inflation measures most closely watched by the Bank also fell faster than economists had anticipated, averaging 3.35% in January compared with analyst expectations of 3.6% for the month and 3.6% in December.

Grocery price growth slowed to 3.4% in January, having hit 4.7% the previous month – but unsurprisingly, mortgage interest costs continued to contribute significantly to the overall inflation figure, jumping by 27.4% on a year-over-year basis.

The cost of rent increased by 7.9% compared with the same time last year, while electricity prices were up 11.1%. Still, the cost of telephone services dipped by 11.9%, gasoline cost 4.0% less in January over the same month in 2023, and natural gas prices were also lower by 16.4%.

Source CMP
By Fergal McAlinden

It was a move that came as little surprise to Canadian mortgage professionals and market observers: the national banking regulator’s decision to leave the mortgage stress test rate, which safeguards the market’s stability, unchanged in December.

The Office of the Superintendent of Financial Institutions (OSFI) opted to keep the minimum qualifying rate for uninsured mortgages at the greater of 5.25%, or two percentage points above the contract rate, a move that was quickly repeated by federal finance minister Chrystia Freeland on the insured side.

While OSFI superintendent Peter Routledge has routinely emphasized the stress test’s importance to the mortgage market, he also conceded in September that the measure was an “imperfect” and “incomplete” means of testing borrowers.

The annual pace of housing starts in Canada fell by 10% at the beginning of the year compared with December, the national housing agency has said.

New figures released by Canada Mortgage and Housing Corporation (CMHC) on Thursday showed that the seasonally adjusted annual rate of housing starts slipped to 223,589 units in January from 248,968 the month prior.

That trend was driven by a slower pace of urban housing starts, which dropped by 11% to an annual pace of 208,119 units, and multi-unit urban starts, whose pace plunged 14% to 164,789 units.

Still, CMHC noted that construction ticked upwards on an annual basis in January, rising by 13% thanks to stronger year-over-year multi-unit starts.

Montreal and Vancouver saw their annual rates of housing starts slow dramatically in January – falling by 28% and 55% respectively – although Toronto posted a huge increase, with multi-unit starts propelling a 179% jump over December.

The news of a sluggish start to the year on the construction front arrives amid reports of plummeting homebuilder confidence, with high interest rates and building costs presenting significant challenges for the construction sector.

The Canadian Home Builders’ Association (CHBA) said its Housing Market Index, released in January, showed 64% of builders built fewer homes because of high interest rates in 2023, with 30% cancelling projects and 36% envisaging fewer starts in 2024 compared to the 12 months prior.

Source CMP
By Fergal McAlinden

It’s no secret that Canada needs to radically accelerate the pace of home construction to prevent housing affordability from spiralling even further out of reach by 2030 – but how gloomy is the current outlook for homebuilding across the country?

According to recent projections by Royal Bank of Canada (RBC), growth of 315,000 units per year will be required over the next six years simply to keep up with the rate of national household formation, a significantly faster clip than witnessed in recent years.

In September, meanwhile, Canada Mortgage and Housing Corporation (CMHC) reiterated its view that about 3.5 million extra housing units are needed between now and 2030 to restore housing affordability, with Ontario, British Columbia, Quebec and Alberta facing significant challenges meeting their targets.