As expected by many, the Bank of Canada held the overnight rate at 5%. According to the Governing Council, economic activity in Canada has slowed down in response to past interest rate increases. In their recent meeting, the Bank acknowledged some signs of deceleration such as less consumption and demand for housing, durable goods, and services. Despite a tight labour market and persisting wage pressures, there is evidence that supply and demand in the economy are approaching balance.
The Bank remains in a delicate spot with inflation sitting above their 2% target and increased global risk of higher inflation. Chief Economist Dr. Sherry Cooper mentions that the “upside risks to inflation include elevated inflation expectations of households and businesses, growing extreme weather events, and heightened geopolitical uncertainties including the Israel-Hamas war.”
Last September, “mortgage rates continued to rise in response to the Bank’s previous rate hikes and one of the largest bond sell-offs in history.”
The Canadian Real Estate Association reported a 1.9% drop in September’s national home sales compared to the month before - the third consecutive monthly decline. Edmonton, Montreal, and the Kitchener-Waterloo region drove up more sales as opposed to Greater Vancouver and the Greater Toronto Area.
Sellers are coming off the sidelines and are now back in the market causing a rise in new listings. Based on the CREA report, “the number of newly listed homes jumped 6.3% on a month-over-month basis in September, making for a cumulative gain of about 35% from the 20-year low reached back in March. New listings are trending near average levels now.”
As sales have slowed and with new listings on the rise, the national sales-to-new listing ratio in September fell to 51.4% compared to 55.7 in August following a peak of 67.8% in April.
The Aggregate Composite MLS® Home Price Index (HPI) went down 0.3% month-over-month in September 2023— the first decline since March. The drop in national home prices last September came solely from trends in Ontario. Future data in the coming months will explain whether Ontario is an outlier or the first province to show trends of prices easing.
As the Bank works toward its 2% target it must keep a close eye on economic and housing activity as well as other inflation risk factors. Dr. Cooper says “With so much uncertainty and a marked third-quarter economic data slowdown, the BoC will likely remain on the sidelines.” The Bank of Canada may pause rate hikes for the next six to nine months according to Dr. Cooper’s predictions. The Bank of Canada will meet on December 6th for the next interest rate announcement. Stay tuned for future updates!
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