Steady as it goes – Bank of Canada maintains its key policy rate at 5.0 per cent

In its recent decision, the Bank of Canada has opted to maintain the key policy rate at 5.0%. This move comes after assessing data as of October 2023, which indicates that the inflation rate stands at 3.1% and is expected to gradually move toward 2.5% by the third quarter of 2024.

Bank of Canada Governor Tiff Macklem expressed optimism, stating, “This monetary policy tightening is proving effective, and interest rates may now be sufficiently restrictive to guide us back to price stability.” He also noted that the economy is likely to remain somewhat subdued in the coming quarters as excess demand, which had been driving price increases, has now subsided.

According to the Canadian Real Estate Association (CREA) October 2023 resale real estate market report:

• National home sales are projected to rebound by 9%, reaching 490,257 units in 2024, as interest rates approach a downward trend and housing markets return to their long-term patterns.
• The national average home price is expected to see a modest 1.5% increase from 2023 to 2024.

For more insights, watch my recent interview with a top Canadian economist here.

Looking ahead in 9 to 12 months’ time

The Bank of Canada would be poised to reduce the overnight interest rate to spur the general economy back to health and provided inflation has moved closer to its target range of 2% – likely to happen now in late 2024. This potential move could benefit over 50% of mortgages up for renewal in 2025 and 2026.

The impact on the real estate market would be substantial. Factors such as pent-up demand, lower interest rates improving affordability, increased immigration, and a housing shortage could drive significant changes.

Lower rates may spur activity, making it more affordable for buyers, especially with rising immigration, while supply remains tight. This dynamic could reshape the real estate landscape soon, presenting opportunities and challenges for buyers and sellers.

The next Bank of Canada announcement is January 24th, 2024.