Latest Bank of Canada move a positive one for the mortgage market, says CEO

The central bank held rates steady for a third consecutive announcement

Latest Bank of Canada move a positive one for the mortgage market, says CEO

After a gruelling year for mortgage borrowers and homebuyers in 2023, the Bank of Canada provided some cause for optimism on Wednesday by holding rates steady for a third consecutive time.

That was a “good-news announcement” for the mortgage market, according to co-CEO and CanWise mortgage lender president James Laird, who told Canadian Mortgage Professional the Bank’s statement was an encouraging one on the inflation and interest rate fronts.

“The Bank pointed to many of its key variables moving in the right direction and inflation moving in the right direction,” he said. “I thought it was notable that they said the economy is no longer in excess demand. So I think mortgage borrowers should be very pleased with this announcement.”

Fixed rates have posted a noteworthy decline since October, indicating growing market confidence that the Bank is effectively done with rate hikes. Still, Canadians with variable-rate mortgages will be waiting a while longer for their rates to tick downwards with the Bank giving little sign that it’s ready to cut anytime soon.

“Variable-rate holders and people with HELOCs [home equity lines of credit] are probably a little frustrated in the sense that even though it’s good news, it’s no help to them until the Bank of Canada actually cuts the rate,” Laird said. “And they’re not talking about that. They still will move rates higher if necessary.

“They’re not saying, ‘We’ll move rates lower if there’s a recession.’ Still, it’s definitely good news, and I think there’s pretty unanimous consensus that hikes are probably over unless something pretty surprising happens. And now we’re into the speculating on when we might see rate cuts and by how much.”

What’s next for Canada’s housing market?

Recent months have seen sluggish activity across Canada’s housing market thanks to the central bank’s aggressive path on rate hikes to date – but its continuing pause means attention has now shifted to the prospect of a market revival down the road.

Step one in increasing consumer confidence is growing certainty that the hikes are over - “and we’re doing pretty well” on that front, Laird said. The anticipation of rate cuts will eventually push people off the sidelines, with that set to accelerate when rates actually begin to fall.

“I think fixed rates coming down [in recent weeks], plus the anticipation of variable rates coming down, will definitely get some people off the sidelines, and it could mean a robust spring housing market, depending on how things unfold here,” Laird said.

“I think the qualifier there is, we also need to avoid a recession. We’re going to see how the economy performs. We know it’s stalled at the moment, which was the Bank’s intent, but will it get worse? We don’t know.”

Despite posting a robust performance throughout the first half of the year, the Canadian economy has shown clear signs of slowing of late, with latest figures from the national statistics agency indicating an economic contraction in the third quarter.

The task currently facing the Bank of Canada is akin to landing a plane in gale-force winds, Laird said – slowing inflation to its target level without crashing the economy.

“Inflation is looking like it’s on its deathbed, but now we’ve got to see if we’re going to be able to get through this without a sharp recession,” he said.

National home prices face uncertain year ahead

Against that backdrop, predicting the trajectory of home prices across the country in 2024 is no easy task – particularly with prices having posted an inconsistent performance throughout this year.

“In most markets, [prices] got back to their COVID peaks this spring, and then in the second half of the year, things have come down a lot,” Laird said. “With fixed rates dropping, and anticipation of variable rates dropping, as long as we avoid a recession, then we should expect home prices to rebound.

“But if we get into a recession, meaning job losses and things like that, then it’d be surprising if home prices rise in a recession-type economy.”

Still, Wednesday’s news was overall a further positive step for the mortgage and housing markets, with little of the uncertainty that has shrouded many of the Bank’s announcements throughout this year and last.

“I found it way less complex of a statement than we’ve seen,” Laird said. “To me, it was basically [saying], ‘Things are moving in the right direction. We’re going to watch it continue to move in the right direction. If that happens, then inflation will be back on target, and then we can lower rates.’”

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