Interest rates were just hiked — here’s what it means for the 2019 Canadian housing market

As was widely expected, the Bank of Canada (BoC) hiked the overnight rate to 1.75 percent today.

Higher interest rates inevitably lead to higher mortgage rates, which means industry players keep a close eye on the BoC’s hikes, and how they could affect Canada’s housing market.Bank-of-Canada-rate-hike

Rising rates could spook would-be buyers, placing downward pressure on the market. And, according to CIBC economist Avery Shenfeld, it looks like the Bank might be hiking rates at a faster pace heading into 2019.

“The tone [of the Bank’s announcement] was more hawkish than we expected, dropping the reference to “gradual” for hikes ahead (which markets will see as leaving the door open for two in a row, meaning a hike in December), and asserting that rates will have to keep climbing to “neutral”, which the Bank has estimated as near 3 percent,” he writes, in his most recent note.

Most economists agree that the rising-rate environment has had a positive impact on the Canadian housing market, helping to take it from bubble territory in 2017 to today’s more balanced conditions.

“Canada’s previously hot housing market and robust household borrowing trends have given way to much calmer activity in 2018, and that’s a good thing,” writes Douglas Porter, chief economist at BMO, in a recent note.

 

Porter notes that the country’s hottest markets, Vancouver and Toronto, now have price gains of just above 2 percent. But, he’s also quick to add that if rates rise too quickly, it could have a negative impact on housing activity in 2019.

“Still, there are plenty of warnings about the past build-up in debt and the vulnerability of the household sector to further rate hikes, a key reason why the Bank of Canada is likely to remain on a gradual tightening path,” writes Porter.

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