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Steady as She Goes: How the Latest Bank of Canada Rate Hold Impacts Home Buyers and Sellers

Bank of Canada Mortgage Rates Stay the Same

If you’ve been on the edge of your seat waiting for the latest interest rate news, the recent announcement might have left you feeling either a bit let down or relieved. On March 6, 2024, the Bank of Canada kept the policy interest rate steady at 5%, the same as it was back in January. This marks the fifth time in a row they’ve decided to hold rates steady after a couple of hikes last summer. It looks like rates are staying put for now, and it’s anyone’s guess when they might change next.

So, what does this mean for folks looking to buy a home? Or for those thinking about selling? Well, every situation is different, but overall, this news isn’t necessarily bad. In fact, no change right now might just be hinting at a bigger change down the road.

An economist from the Canadian Real Estate Association (CREA) shared that the decision to keep the overnight lending rate the same didn’t really come as a surprise. The financial markets had pretty much expected rates to stay put, especially since there wasn’t a drop in the core Consumer Price Index (CPI)—something the Bank of Canada really wants to see before they consider changing rates.

The same economist explained that the relationship between the overnight lending rate and inflation is kind of like a cat and mouse game. The Bank of Canada has said they’d like to lower their key lending rate once inflation starts steadily moving towards their 2% annual growth target. However, higher inflation can also be a result of higher interest rates and the tight money policy we’ve seen over the last two years.

Because of these policies, it might be a while before we see any cuts to interest rates. The Bank is expecting CPI inflation to hang around the 3% mark for the next several months, and they might wait to see what kind of fiscal stimulus is included in the next federal budget and how that impacts inflation. The economist thinks we might not see any rate changes until maybe the summer.

As for the Canadian housing market, these stable interest rates seem to be nudging us back towards a sellers’ market again—thanks to not much growth in inventory and more folks looking to buy. Consumer confidence is also picking up, with people feeling more positive about their financial stability after a big dip last year.

This boost in confidence is likely to lead to more people buying homes. Those who’ve been hesitant because they were worried about their finances are now feeling more at ease. This newfound optimism is encouraging some to start looking for a new home, or pick up where they left off in their previous home search.

For sellers, this could mean more activity and interest in their listings. Market conditions are looking stronger than they did last fall, and certainly better than last year—but not as crazy as the boom we saw in early 2021. However, those looking to buy a bigger or better place will also need to keep in mind that the market is tight.

It almost feels like this pause in changing interest rates is helping to rebuild confidence in the market, doesn’t it?

It’s still a bit early to say for sure what the rest of 2024 will look like for the housing market. The Bank of Canada says its policies don’t directly set house prices, but it does expect to see prices go up due to the growing population and a tighter supply.

Regardless of what happens, CREA is keeping a close eye on all market updates to help Canadians stay informed. They just put out their first quarterly forecast of the year in January, and their next one will come out in April, right alongside another rate announcement and the budget release. Stay tuned!