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Interest rate hold could add heat to real estate markets: mortgage experts

Second consecutive rate hold in place since rates started climbing in March 2022
Mortgage experts expect the Bank of Canada’s decision to hold the interest rate to add heat to the country’s real estate markets. A real estate sold sign is shown in a Toronto west end neighbourhood May 16, 2020. THE CANADIAN PRESS/Graeme Roy

Mortgage experts expect the Bank of Canada’s decision to hold its key interest rate to add heat to the country’s real estate markets.

The second consecutive hold since rates started climbing in March 2022, which leaves the overnight rate at 4.5 per cent, will likely give buyers and sellers more confidence to make a purchase soon, experts said Wednesday.

“This sends a strong signal to buyers and sellers that rates have hit their peak and rate decreases could happen before the end of the year,” said Victor Tran of Ratesdotca in a written statement.

“This could build confidence in the market and potentially prompt more sales.”

The prediction comes after buyers have sat on the sidelines of most markets for months, even as home prices dropped, because rising interest rates are making borrowing more costly.

However, when some real estate boards, like Toronto and Vancouver, reported March sales figures recently, they said they were seeing buyers re-emerge and eye the sluggish market.

“With two consecutive rate holds, we will continue to see the housing market heat up in densely populated regions such as Vancouver and the GTA,” said Leah Zlatkin of in a press release.

The average price of a Toronto area home hit $1,108,606 in March compared with $1,096,519 the month before, the Toronto Regional Real Estate Board said earlier this month.

However, the average price was still down almost 15 per cent from $1,298,666 last March, when bidding wars kept the market moving at a frenzied pace.

Over in Vancouver, the city’s real estate board said the composite benchmark price for all residential properties in Metro Vancouver reached $1,143,900 last month, a 9.5 per cent decrease from March 2022 and a 1.8 per cent increase compared with February.

While prices have dropped in some instances roughly 20 per cent from their peak, Bank of Canada governor Tiff Macklem has given buyers little reason to believe an interest rate decrease is on the horizon. Interest rates tend to move in tandem with mortgage rates.

“The implied expectation in the market that we are going to be cutting our policy rate later in the year, that doesn’t look today like the most likely scenario to us,” Macklem said Wednesday.

Before its pause, the central bank had been hiking the interest rate to quell inflation, which reached a 40-year high last year, but is forecast to hit three per cent this summer.

“This is good news, but it is not job done,” Macklem warned.

“Our destination is the two per cent inflation target, and several things still have to happen to get inflation all the way back to target.”

Among the things that have to happen to convince him to shrink the rate are a drop in inflation expectations, wage growth moderation and the normalization of corporate pricing behaviour.

—Tara Deschamps, The Canadian Press

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