There Is “Risk” In Buying Canadian Real Estate Today, BoC To Hike Rates 5x: CIBC

Canadian real estate is seen as bulletproof but more banks are warning that might not be the case. CIBC Capital Markets’ November forecast shows a steep climb to the overnight rate. They expect the Bank of Canada (BoC) to hike rates up to five times over the next two years. Separately, they warned there is a “risk” in buying in this current rate environment.

CIBC Sees The Bank of Canada Hiking Rates 5x By 2023

The “Big Six” Canadian bank has forecast a steep climb for Canadian interest rates. They see the overnight rate hitting 1.50% by the end of 2023 after receiving 5 rate hikes. The first hike is forecast to happen in September 2022, a little later than other banks have forecast. It would be followed by one more hike at year-end, with the remaining three hikes in 2023. This would put the overnight rate at six times its current level.

Canadian Mortgage Rates Will Climb With The Overnight Rate

A steep climb for the overnight rate means a steep climb for mortgage rates. The last time the overnight rate hovered around 1.5% was August 2018 and it was 3.5% for a 5-year fixed-rate mortgage. That’s about 50% higher than they currently sit.

Mortgage rates rising to this level would mean more than just paying more at renewal. A climb to that level would reduce buying power by roughly 15% compared to today. Affordability is the concern presented, but this is a bigger issue for liquidity. Resale prices are determined by how much people can pay. Reduced liquidity would mean prices need to adjust to a more liquid level. It was a similar increase in liquidity that helped boost prices during the pandemic.

Bank Warns There Is “Risk” In Buying Canadian Real Estate Today

Separately, CIBC deputy chief economist Benjamin Tal warns this isn’t an ideal time to buy a house. “I think there is a risk of getting into the market at today’s rates,” he said in an interview with Bloomberg

“We are still dealing with emergency interest rates. Let’s remember that these are not normal interest rates and eventually they will rise,” he added.

The economist suggests buyers look for more manageable-sized properties at this time. Stretching yourself against rising rates is more of a gamble than doing so when they’re falling. A falling rate environment is what we’ve become accustomed to over the pandemic.

The bank’s sentiment is consistent with statements from other Canadian banks these days. BMO made a similar warning, saying debt will be cheap for a long time — just not this cheap. Scotiabank makes five rate hikes sound conservative, forecasting eight over the same period. Five or eight, it’s all a guess. An educated guess, but a guess nonetheless. 

The principal takeaway here is that rates are expected to climb significantly. Mortgage rates are at an emergency level with quantitative ease (QE) driving them lower than the overnight rate would support. As the economy recovers, these supports will be eased, and rates will normalize. That’s great news for the economy, but less clear what it means for home prices.

Want more? Subscribe to our new YouTube channel for analysis, news, and interviews you won’t find anywhere else.



We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Barrett 3 years ago

    It’s funny to see agents on social media complain, “Canada can’t hike rates this much!”

    The overnight rate was 1.75% before the pandemic. We cut it to 0.25% and then used $4 billion/week in QE (similar to cutting another 1 point) only to realize this wasn’t the economically devastating disaster they thought it was going to be. They increased the money supply by 20% to see a 20% increase in home prices. How did anyone not see this coming?

    • Mortgage Guy 3 years ago

      Don’t forget they probably reduced the rate impact on mortgages by another point or so with a mortgage buying program as well. It’s actually insane how much stimulus they were using to push home prices higher at this point.

    • D 3 years ago

      Bank robbers complain about too much security cams in the bank.

  • Rob Turner 3 years ago

    “Liqiuidity.” Like when the Bank of Canada began injecting liquidity into the system in 2019 to prevent Toronto home prices from continuing to fall. Geniuseses. Not they have no fire power to fight high inflation and need to crush economic growth to manage their abuse of the printer.

    • Marc 3 years ago

      My favorite is the government spending during the pandemic. Take a look at it. Very clearly the majority of it went as handouts or overpaying to companies associated with political insiders.

    • Mortgage Guy 3 years ago

      Most people have no idea why price growth began accelerating in 2019. They can’t even remember, they just know home prices reversed course from its downturn. High home prices are engineered in Canada, not an accident.

      I don’t know if that makes housing always a good bet but it certainly creates moral hazard for lenders and purchasers.

      • backwardsevolution 3 years ago

        “High home prices are engineered in Canada, not an accident.” Yes, I agree, totally engineered.

        “Most people have no idea why price growth began accelerating in 2019. They can’t even remember…”

        Could you refresh our memory by providing a link? That would be greatly appreciated. Thank you.

        • Sina 3 years ago

          I think economics nature should take its own course of action. The govta fault in printing way too much money, high inflation is a biggest threat. Policy makers really dented this country. They just killed the middle class and poor households, housing is a forgotten dream for many, in coming years they will struggle to meet their ends meet. Disaster.

  • Nassim 3 years ago

    Tal told people to buy a few months ago and now warns those same people are going to be at risk. It should be obvious at this point they hedge their bets every other week with a different take and their audience chooses which type of person the economist is.

    • George 3 years ago

      Same thing with all of the “experts.” Media types pretend this shows balance but really you can’t even close a home purchase in the amount of time it takes these people to flip flop in the media.

  • zeejay 3 years ago

    “Canada’s red-hot housing market has become a bonfire, spurring comparisons to earlier bubbles and prompting calls for cooling measures. But policymakers are standing back, unwilling to intervene for fear of undermining Canada’s still-fragile economic recovery from the COVID-19 pandemic. Housing affordability advocates, meanwhile, are calling for tax changes to target investors and a rethink of an exemption that allows homeowners to pocket all profits from the sale of a primary residence. If the Liberals or any political party in Canada want to improve housing affordability, they should first concentrate on the route of the problem. That being the dismal average wage growth over the past 20 years and the government’s inability to enact quality policy over the same amount of time.”In the Greater Toronto Area and Greater Vancouver, housing prices have already increased at four times the pace of incomes over a 10-year period — a complex issue, indeed. Is Canada a real welfare state”?

  • SH 3 years ago

    There is no risk in a market in which the government will swoop in to rescue the unearned gains of foreign and domestic speculators, putting their interests ahead of young Canadian taxpayers of modest means. China allowed Evergrande to fail; Canada is now more centrally planned and anti-capitalist than China.

  • Michael 3 years ago

    Does Better Dwelling ever editorialize toward the positive? Generally, the articles I read here are consistently filled with rhertoricalized facts supporting a “sky is falling” narrative. Perhaps try removing the slant-creating adjectives and adverbs when you write. I’m sure there’s money to be made in reporting plain facts rather than facts lathered in fear.

    • Taryn 3 years ago

      That actually couldn’t be a more objective headline considering those are the points the bank highlighted.

      The most impactful thing the media has done is convince people that anything they don’t like is “biased,.” They’ve trained weak minds to rationalize the world as “biased” when it’s the wrong bias they don’t like. Let me guess, you also think Russia is the only reason people would not vote the way you do?

  • Faisal adamjee 3 years ago

    In my view the govt did well by printing and flushing money in the economy otherwise it would have had NO growth which equals to High Inflation…by printing money there will also be high Inflation but with GDP Growth and some payroll levels retaining … economic reality ( up to some degree ) works like a Seesaw with Growth being one side and Inflation the other. So the govt saved the economy from a massive disaster of jobless- ness & deflation .. Real Estate ; Low mortgage rates aren’t the only factor contributing towards high R.E prices..its Immigration and investors buying , specifically overseas investor …so the Earning to R.E. prices Ratio doesn’t always make sense because funds are sourced from out side Canada … when Immigration opens again early 2022 you will see a substantial rise in R.E. prices …who ever read this please let me have your views…thanks

Comments are closed.