What impact would another Bank of Canada hike have on the housing market?

The central bank is scheduled to reveal its next decision on Wednesday

What impact would another Bank of Canada hike have on the housing market?

Another Bank of Canada interest rate announcement is looming this week, with homeowners, prospective buyers and other borrowers waiting with bated breath to see whether another rate hike arrives on Wednesday morning.

A majority of economists polled by Reuters last week indicated that a 25-basis-point jump is probably in the cards for the Bank’s decision, set to be revealed at 10am EST on July 12, a move that would mark a second successive hike and bring the central bank’s trendsetting interest rate to 5.00%.

That would see the policy rate spike to a 22-year high, having surged dramatically since March last year as the Bank continues to grapple with persistent inflation and a resilient economy.

In its June statement, the Bank referenced a housing market uptick as one of the factors keeping Canada’s economic performance more elevated than expected – but what impact would another rate increase have on sales activity and home prices?

For Chase Belair (pictured top), co-founder and principal broker of the nesto digital brokerage, it’s a “coin toss” whether the central bank will hike rates again on Wednesday, although there’s also no guarantee that a July increase would be the last of the year.

He told Canadian Mortgage Professional that Canada’s chronic lack of housing supply and continued demand were likely to keep the market ticking along even in the event of a further rate jump this week.

“Whether or not the Bank of Canada gives us another bump next week is… probably in the range of 50-50,” he said. “We may even see another one before the year’s out even if they do increase it.

“But I think there are still enough Canadians out there who are qualified to buy a home, waiting for a home to become available that they fall in love with and purchase. And I don’t think that a new qualifying rate or another few increases by the Bank of Canada are strong enough to counteract the home shortage.”

How has the housing market absorbed interest rate increases to date?

A new report by Royal Bank of Canada (RBC) on the impact of the central bank’s last rate hike in June indicated that the effects had been mixed across various regional markets.

Toronto, Hamilton, Ottawa and Vancouver all saw their markets cool in the aftermath of the increase, according to bank economists Robert Hogue and Rachel Battaglia, although activity in the Fraser Valley, Calgary, Edmonton, and Montreal continued at a decent clip.

Supply is rising across the country, Hogue and Battaglia added, with more homes becoming available for sale in every major market last month.

“So far the growing supply hasn’t done much to ease (recently re-emerged) upward price pressure),” they said. “But if sustained, we would expect the pace of property appreciation to slow in the coming months.”

Still, the retreat of buyers in some of the country’s leading markets in June, according to Hogue and Battaglia, “could be a sign that the future trajectory will be more measured.”

What effect would another rate jump have on current homeowners?

A further rate hike would increase borrowing costs once again for scores of Canadians who have already seen payments surge over the past 15 months.

Some analysts have sounded the alarm on the possible threat posed by additional rate hikes to borrowers who are already struggling to keep up with payments – and last week, Canada’s financial consumer watchdog warned lenders of their duty to help that cohort of homeowners.

Ahead of Wednesday’s announcement, Canadian Imperial Bank of Commerce (CIBC) senior economist Andrew Grantham has urged the Bank of Canada to end its rate-hiking path, describing its latest move as “at best unnecessary, and at worst a mistake” in a recent report.

However, the release of new labour market figures by Statistics Canada on Friday appeared to increase the likelihood of a rate increase this week, with the economy adding 60,000 jobs despite the unemployment rate also inching upwards for a second successive month.

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