Canada

Bank of Canada Expected To Hike Rates Sooner Than Planned, May Cool Housing

Canadian real estate buyers may get a little psychological shock later this week. The Bank of Canada (BoC) will update the public on monetary policy next Wednesday. Three Big Six banks said they expect the central bank to discuss higher rates. Two of those, expect a discussion on rate hikes happening earlier than stated. All three see the BoC trying to cool the exuberant expectations they set for loose policy.

RBC Sees Recovery Plan and Interest Rate Hikes Accelerating

RBC economists Nathan Janzen and Rannella Billy-Ochieng see rate hikes sooner than most. The economy is recovering at a much faster pace than the BoC had anticipated just four months ago. In January the central bank had forecast a 2.5% annual rate contraction for Q1 GDP. The quarter’s final number showed 6% annualized growth — way above expectations. 

The whole recovery timeline may speed up, according to the economists. “The latest Bank forecast assumed this will happen in 2023, about a year later than our own view of early 2022,” they said. This will cool off asset purchases further, and tighten the overall credit environment. “We continue to expect the first interest rate hike will come earlier than the central bank has been flagging, but still not until the second half of next year.”

BMO Sees The Bank of Canada Dampening Home Sale Expectations

BMO macro strategist Benjamin Reitzes is expecting some housing cooling statements next week. He said, “it’s no coincidence that housing is on fire while rates are at or near record lows.” Adding, “a signal from the BoC to the public that rates will eventually go higher, could help dampen the extreme exuberance currently in the market.”

Though he sees the BoC announcing a taper and setting expectations, he sees little else. Moving the 2023 guidance to 2022 would be unlikely. “Given the current uncertainty those outcomes seem unlikely,” he said. Despite the optimism, “persistently high uncertainty will keep the policymakers cautious for now.” 

National Bank of Canada Sees The Potential For Rate Hikes To Accelerate

National Bank of Canada (NBC) chief analyst Jocelyn Paquet thinks rates may hike early. She said nothing housing specific but sees QE tapering and guidance revised higher. The upward revision of guidance would lead to credit tightening. 

She said, “we’re likely to see a change to the Bank’s forward guidance on the policy rate which is currently predicated on slack being absorbed in 2023. Expecting the impact to either guide earlier, like RBC suggested, or “change in the structure of its forward guidance to afford the Bank more flexibility on adjusting the overnight target over the next couple years.” 

There’s still a lot of uncertainty in the economy, but generally, it’s better than expected. The uncertainty lowers the chance of any near-term tightening. The BoC however is at fault for setting off a home-buying spree with their statements. It would be surprising to not see the central bank try to walk them back. 

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  • Ian Brown 2 months ago

    It would be more surprising if they didn’t address home prices, and try to spook the market into risk.

    I’ve never seen the *banks* say the central bank is the problem. They work together to set policy.

    • D.D Levitwitz 2 months ago

      1) that unexpected growth is totally fake as is the whole world economy since 2008
      2) corporations are now doubling down on automation which will have a stagnate effect on growth, on the one hand Corpos will get rich from lower costs making the economy better for it, on the other hand many people won’t have a job which will negatively effect the economy
      3) the bank of Canada and Canadian government has shamelessly since 2015 used window guidance measures to prop up the housing market via making it easier for rich people to invest and immigrate here, it’s surprising that they’re planning on hiking rates which will kill the market in the long run, it seems somethings a foot and that they can’t keep lowering rates because as I theorize Canada has no economy without housing and oil so they’d rather crash things now (too late) than in the future

  • Baio 2 months ago

    BOC prepared for the collapse of the economy, and then found out most of the economy is just trading homes. Lowering rates makes it perform even better. LOL

    Imagine. Half the country lives in a province where almost every store is running on reduced capacity. Somehow the economy only makes a minor dip.

    • GTA Landlord 2 months ago

      Part of why they helicoptered money. It was the same plan most places had. It was about inflation, not really helping people.

  • Investor 2 months ago

    You make it sound like a 0.25% that BoC will likely hike by is the hail Mary for the housing woes.

    • Brandon 2 months ago

      A significant number of credit bubbles in developed markets that primarily borrow in their own currency are popped in this way. For instance the US credit bubble in ’05.

    • Neo 2 months ago

      Ya, 0.25% won’t do anything except begin to change sentiment. But FOMO is WAY to strong right now for 0.25% to matter. Rates would have to pop 100 basis points to accomplish anything. That’s not happening this year at all.

      • Sam 2 months ago

        For a lot of Canadians it’s fear of missing out on ever being able to buy a home…..hence the rush to buy now at exorbitant prices. Many have been waiting for some sort of rate hike and correction or softening, but came to the conclusion that the government, BOC will do everything in their power to stoke perpetual increasing prices. So they finally jumped in….and it sucks…..

        I hate to be critical because I understand. In my opinion, anger should be directed at the BOC, and the Liberal Government (and I can’t stand social conservatives). Even real estate agents, speculators, money launderers and foreign investors shouldn’t be blamed….vultures will go wherever theirs roadkill. It’s the Liberals and BOC that left Canadians bleeding in the ditch to be preyed upon.

  • George 2 months ago

    Bank of Canada made a disastrous mistake…..first of all, do not follow the usa. They are useless in monetary issues. Second, better raise the rates fast before there is absolute chaos in society. There will be more social issues,more homelessness, poorer seniors and in general…..the quality of life will go down except for a small percentage of the population……act fast!!!!!!

  • Smug Canadians 2 months ago

    Remember, the BoC is the main reason for this crazed market! By telling everyone, ‘nothing will change until 2023’, they put the nitrous oxide in an already atomic market. They should be ashamed of their stupidity!! I assume the governor is educated, although you would never know by his actions. Oh wait, the boy wonder is pulling his strings, so why am I confused?

  • Smug Canadians 2 months ago

    And I meant the recent explosion in the market is instigated by the BoC

    • D.D Levitwitz 2 months ago

      Yes, window guidance. The Japanese built their entire economy through this socialist measure but on productive industries like manufacturing, construction and anything under the sun Involving R&D. The US threatened Japan to kill their economy in 1985 because they were going to control everything. The BoJ and ministry of finance pivoted their window guidance to their housing market and we all saw where that went. Canada is doing the same except the government and central bank never bothered helping build the fundamentals of a proper economy like the Japanese. Canada is a sick country and doesn’t deserve to be one at that.

  • yangyun 2 months ago

    A year of imbeciles running the various govts and the Bank of Canada, easily played by the Bank CEOs

  • Ashley 2 months ago

    0.25% will be just a start and will not stop just at that. In the budget, Ontario govt. has projected cost of borrowing to increase from current 1.6% to 3.2% in FY2023/24, that is a steep hike in a span of 2 years. Reference: https://economics.td.com/ontario-budget
    For what it’s worth, they would be basing this based on input from BoC projections. I would think such hikes by BoC will make a lot of impact on housing come the time of mortgage renewal, unless salaries outpace the hikes.

  • marie salmon 2 months ago

    All this was an exercise to make more wealth for the wealthy and to screw the middle and lower income earners. If you had 5 – plus income properties, like many of our politicans, bankers, real estate agents, and wealthy people, you have just made a ton of money selling those properties and can just kick back and rest in your remaining homes. Not like the rest of us who only have 1 home or no home. It was literally the rich attacking the poor and grabing what they could. The higher interest rates will not affect the wealthy. It will again screw over the middle and lower income earners.

    • Axel McLion 2 months ago

      The middle and lower income earners deserve to be screwed over for participating in the game of buying overpriced houses. They should have stayed in their parents’ basements or rallied in the streets. Now they will pay as their overpriced housing will lose value in real terms over the next 10-30 years.

    • SH 2 months ago

      Re: the multiple unit owners.

      They were given deferrals on ALL of their mortgages if they requested. No questions asked. This policy was imposed on the banks by the government and CMHC. Investors requesting mortgage deferrals were not required to prove that their tenants were not paying rent.

      The result is that these multiple unit owners, the vast majority of whom had tenants dutifully paying rent, pocketed the extra cash flow and put it towards a down payment on ANOTHER property.

  • Ashley 2 months ago

    The whole CEWB/CERB/CESB benefits were so poorly managed by govt. and most of these have resulted in being fraud. Companies like Yellow pages who had not paid a dividend for several years, claimed CEWS and paid dividends during pandemic. This is absolutely absurd and fraud. Reference: https://www.cbc.ca/news/business/cra-covid-cews-complaints-1.5991108
    Same thing with mortgage deferral it was stupid to just give a blanket deferral to everyone.

    • Chewy 2 months ago

      That’s because 2/3 of Canada’s mortgages are insured. The government doesn’t want that on their books.
      For the banks, they don’t need to book impairments (I work closely to large FI and can see their books, that’s another conversation).
      For borrowers, they dont need to pay mortgages.

      Win win win situation. Except to those who have been financially responsible. Tbh, I’m looking to the West in general just because these governments act like socialists and give the populace drugs to get by the day. No wonder Asia is catching up.

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