Bank of Canada May Revive Real Estate Buyer Exuberance By Spring: BMO

Exuberant Canadians are hooked on real estate, and consequently are following the central bank unusually close. A new report from BMO shows households have shifted price growth expectations with Bank of Canada (BoC) announcements. As the rate tightening cycle comes to an end, the bank sees the potential for the next round of central bank statements to revive the market this Spring. 

Home Price Expectations Linked To BoC Announcements 

Canadian homebuyers, especially investors, have been hooked on the BoC’s words. “There’s no question that psychology has played a major role in this housing cycle, from the days of ‘rates will remain low for a long time’, to the crushing reality of aggressive rate hikes,” notes Robert Kavcic, a senior economist at BMO. 

He reinforces his point with historical survey data from Bloomberg/Nanos. The net difference in respondents expecting price gains vs those expecting losses, is almost too perfect post-2020. As the central bank announced cuts, the net flow of expectations shifted towards higher prices. Similarly, the BoC hikes line up with erosions in expectations.  

“The latest turns have come as the Bank restarted the tightening cycle after an early-2023 pause (sentiment deteriorated with renewed rate hikes),” he explains. 

Over the past year, the shift has been particularly telling of a sentiment-driven economy. Central bank research shows it takes between 18 and 24 months for the full impact of a rate decision to hit the market. The rapid swing in sentiment almost immediately after, indicates this is a game of expectations. 

Tightening Cycle Is Over, Expectations Are Rising

The latest results of the Bloomberg/Nanos survey show the curse is far from broken. Households once again expect home prices to rise as the end of the rate hikes are forecast. 

“Now, it is widely assumed that this tightening cycle is over which, from a behavioral perspective, is an important milestone—buyers now know the ‘worst case scenario’ with respect to rates and can plan accordingly,” he says. 

Adding, “At the same time, markets/the Twitterverse/real estate talk shows are pricing in rate cuts this year, which would no doubt go an even more important step further toward improving market psychology.” 

Historically, rate cuts occur after job losses—not ahead of them, like we saw in 2020. Rapid population growth is also not something that occurs in a stagnating economy, since rising demand typically creates inflation. Consequently, rate cuts prior to 2020 haven’t had such a rapid transmission to prices. 

If the labor market continues to demonstrate some resilience, Kavcic believes the Spring could see a notable bounce in market activity. Whether it’s enough to drive home prices higher isn’t yet clear.

11 Comments

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  • iamdman 4 months ago

    Yikes that is a glaring indication of what is going on. How much more do we need to slap the BOC in the face to make them understand they need to stop signaling the market every news conference!

    • Curtis 4 months ago

      You mean sexual discrimination and violent H sexuality over the B Word? Causing the mental health and addictions crisis?
      This country has got alot of straightening out to do.
      Manner English only.

  • Nbuddy n fuddyduddy 4 months ago

    30B injection into repo facility by BOC seems to have polished up the crystal ball on the future of home prices hmm? Spring market should be bullish

  • Tammy Elesko 4 months ago

    I agree there may be a price pop in the near term, but in the long term I have trouble seeing the massive increases that we had over the past decade. Not with the economic issues in this country and the slow housing starts. Our lack of productivity compared to the US, anti-business policies, high taxes, inflation and slow wage growth will limit price increases. Immigration will maintain a steady demand but I think the price trajectory won’t be as steep. 3-5% per year for the next decade until incomes catch up. The inevitable change to a more business friendly government may boost that. Of course doom and gloomers like our friend Bill F will still scream “Bubble Bubble Collapse Collapse!” until the end of days but you can’t fix crazy.🤣

  • Oldguy 4 months ago

    We are close to a crucial point where the BofC either holds steady or inflation rips ahead again. This has happened before. I don’t think that the bank has the guts to stand up the government. We should know within 3-4 months.

  • Curtis 4 months ago

    You think you can make fun of people, believing you are better than everyone else, and it not be s*xual discrimination in this country?
    Commonwealth country.
    So you best be preparing for something else other than a hyper s*xual law breaking extravaganza.

    Cause not in my country.

  • Bob Jones 4 months ago

    Jack up the rates.

  • Daniel P. 4 months ago

    Labor market is about to be hit by an ugly recession. That’s the X factor.

  • Dennis_K 4 months ago

    Regardless of the BoC’s pronouncements and the market sentiment that seems to track it, I am completely flummoxed as to how much higher can prices go (both for purchases and rentals), given the still-apparent discord between median wages and the price of housing? I thought prices were already into the stratosphere, but articles like this make me think someone is trying to send them deliberately into orbit, be dammed the consequences. Regardless of local ‘demand’, where is the money going to come from (if not wages) and how much lifetime debt are people going to be taking on just to live?

  • Frank 4 months ago

    US feds do the same seems it’s all about their cronies reading their signals and putting their money in the right place

  • Ben 4 months ago

    Even if interest rates go down, they’re still not going back to sub 4%. It won’t be enough to make people move when buyers see prices falling they’re more likely to exercise more patience to see how far prices might drop. That’s why down cycles last multiple years. Low rates don’t mean people are going to dive into a creaking housing market.

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