Pricing and transaction volumes are especially at risk in the current volatile environment
Beyond the already manifest effects on the housing market, the Bank of Canada’s outsized rate hikes are also likely to have a substantial impact on the commercial segment, according to Nick Axford, principal and chief economist at Avison Young.
The BoC’s hikes will apply “further constraint on the commercial real estate sector … impacting both pricing and transaction volumes,” Axford said.
Among the main drivers of the trend will be inflation, which remains uncomfortably high at 6.9% as of September “and is likely to rise again before it declines.”
“The bank continues to focus on preventing a wage-price spiral and remains concerned about the high level of core inflation,” Axford said. “Looking ahead, we expect [interest] rates to be pushed up further, but in more modest increments with one or two 25-basis-point hikes over the coming months.”
Axford is anticipating interest rates to stabilise in early 2023, “provided that inflation starts to move sustainably downwards from the early part of next year.”
For the time being, “the latest increase coupled with the quantitative tightening that is also underway represents a significant tightening of financial conditions, which will restrict the flow of credit in the economy,” Axford warned.