The Bank of Canada announced today it is holding the overnight lending rate at 5%, a move that many experts predicted. But with inflation rising in December to 3.4% – up from October and November’s 3.1% – homebuyers may not see interest rate relief as soon as anticipated. The BoC cautioned that economic growth is not expected to pick up until the middle of 2024 and expects inflation to remain close to 3% until then.

The Impact on the Spring Real Estate Market

Though the spring market is still a couple of months away, the Bank of Canada’s decision to hold rates offers reassurance to homebuyers concerned about potential rate increases. Last month’s Canadian Real Estate Association (CREA) report predicted a recovery in housing demand in 2024, and with interest rates holding steady, buyers may have the confidence they need to jump back into the spring market. 

“The tone of this announcement will influence whether the housing market gets off to a strong start. Discussion of rate hikes will mean a sluggish start to real estate activity in 2024,” explained James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. 

In response to rising interest rates, benchmark home prices in most of Canada’s major markets have been dropping since June. On the other hand, if interest rates start to come down later this year, home prices will rise again. With anticipation already building for rate cuts in 2024, home prices will likely start climbing as housing demand increases in the spring, signaling good news for sellers. Toronto Regional Real Estate Board (TRREB) Chief Market Analyst Jason Mercer echoed this sentiment in TRREB’s December market report: “Assuming borrowing costs trend lower this year, look for tighter market conditions to prompt renewed price growth in the months ahead.”

When Will Interest Rates Drop? 

The next Bank of Canada announcement is scheduled for March 6, 2024. It’s unlikely that rates will drop then, as many experts predict rate cuts won’t happen until mid-to-late 2024. Homeowners facing mortgage renewal this year might benefit from choosing a shorter-term mortgage so that when rates do come down, they can take advantage of better rates. 

“Anyone with a variable-rate mortgage or home equity line of credit (HELOC) can expect their rate to remain unchanged, but will be reading the Bank’s language closely to see if a rate hike or rate cut is more likely moving forward,” added Laird. According to Ratehub.ca’s mortgage payment calculator, a homeowner who bought a home at the December national average of $710,300 and put 10% down with a 5-year variable rate of 5.95% amortized over 25 years has a monthly mortgage payment of $4,197. 

Zoocasa(Mackenzie Scabetta, January 24,2024)