The Bank of Canada's recent hawkish tone may actually breathe life into the sluggish housing market, according to industry experts. Governor Tiff Macklem warned that if energy prices remain elevated, the central bank could be forced to hike interest rates more than once, prompting potential homebuyers to reconsider their wait-and-see approach.
Bank of Canada Holds Rates But Signals Potential Hikes
The central bank held its key interest rate at 2.25 per cent for the fourth consecutive time on Wednesday. However, it cautioned that persistent high energy prices could spill over into inflation and inflation expectations, necessitating multiple rate increases. Macklem stated that the governing council is looking through the war's immediate impact on inflation but will not allow higher energy prices to become entrenched.
Phil Soper, chief executive of Royal LePage Real Estate Services, noted that with inflation pressures resurfacing, the Bank of Canada has no room to lower rates further, and the next move could be upward. He urged homebuyers to consider locking in pre-approved mortgage rates before they expire.
Inflation Trends and Market Impact
Canada's consumer price index accelerated to 2.4 per cent year over year in March, up from 1.8 per cent, driven by higher oil prices. Economists forecast the CPI could hit three per cent before cooling, depending on the duration of the conflict in Iran. Core inflation remains near the Bank's two per cent target, but the Business Outlook Survey shows rising short-term inflation expectations, which the central bank is monitoring closely.
The housing market has been in decline, with national average prices down nearly 19 per cent from the February 2022 peak, according to the Canadian Real Estate Association. The war in Iran has pushed mortgage rates higher, leading to a revised outlook for sales and prices in 2026.
Buyers May Return to the Market
Anne-Elise Cugliari Allegritti, vice-president of research and communications at Royal LePage, explained that many sidelined buyers were waiting for cheaper lending options. However, with the prospect of rate hikes, that mentality is shifting. She expects some of these buyers to re-enter the market this spring and summer, as there is little reason to delay further.
While Royal LePage does not anticipate a massive wave of buyers, the changing outlook could provide a much-needed boost to a struggling market. Soper concluded that as the reality of potential rate hikes sets in, more buyers are likely to come off the sidelines in the coming months.
