Canada housing market showing signs of ‘cooling’ as more interest rate hikes loom

The Bank of Canada's interest rate hike is already having an impact on the housing market, but experts are divided on whether home prices will rise or fall in the long term.

Real estate watchers say rising interest rates are already starting to have a “cooling effect” on Canada’s hot housing market, but some economists are warning that the Bank of Canada will have to strike a tough balance with monetary policy tightening or risk a market crash.

Central banks across the world have signalled plans to hike interest rates through 2022 in an effort to tame global inflation, with the Bank of Canada kicking off what’s expected to be a series of increases to the key overnight right earlier this month.

The Bank of Montreal said in its latest interest rate forecast Monday that it now expects the Bank of Canada to hike rates by 50 basis points to one per cent at its next two meetings.

BMO economists cited Bank of Canada deputy governor Sharon Kozicki’s speech on March 24, in which she said the central bank “is prepared to act forcefully” to tame inflation.

CIBC said in its updated forecast on Monday that interest rates could hit 1.5 per cent by the end of the year and reach the 2.25 per cent mark by September 2023.

Some have already observed a slowdown spurred from the central bank’s move to an overnight target of 0.5 per cent, the first hike to interest rates since 2018.

Realtor Nasma Ali has noted a marked slowdown in housing demand in the red-hot Greater Toronto Area over the past few weeks, which she sees as a likely precursor to a reckoning in the suburbs and surrounding towns that have seen blistering price growth over the past two years.

“I had listings that, in January, would have had 100-plus showings,” Ali, chief executive of broker One Group, said. “All of a sudden, we’re only getting five to six in four days. This is a transition period and it’s not for all markets or price points. But we’re seeing it.”