BOC: Condoning More Interest Rate Hikes

Canadians, especially homeowners, have been grappling with the increased interest rates since the Bank of Canada announced the hike just last month. Raising by 75 basis points, the rate sits at 3.25% and has buyers holding off on purchasing homes, despite the re-calibrating housing market.

Read More: NBC’s Interest Rate Hike To Bring Mortgage Market Stabilization

Many have wondered if this was Canada’s last rate hike. Chief economists from CIBC, Benjamin Tal and Karyne Charbonneau, said CIBC doesn’t predict more rate hikes in the next year. However, according to the governor of the Bank of Canada, that might not be the case.

Calls for More Rate Hike–Up to 4 %

Recently, the leadership from the Bank of Canada made a statement on the Bank’s stance on interest rates in the wake of inflation:

“In September, we raised our policy interest rate for the fifth consecutive time since March. And we indicated that interest rates will likely need to go higher still to bring inflation down to the 2% target.”- said Tiff Macklem, Governor at the Bank of Canada.

Read More: The Inflation Tsunami in Canada

The BOC is expected to review the incoming financial policy decision in the coming weeks. The next overnight rate target is set for October 26th, only then will Canadians have an answer.

Steven Huebl, Canadian Mortgage Trend reporter, says “with the benchmark lending rate currently at 3.25%, there are growing expectations that the Bank of Canada’s terminal rate for this tightening cycle will be 4%, if not higher.”

Huebl wasn’t the only one to voice predictions of the cycle hitting 4%. The Organization for Economic Co-operation and Development (OECD) recently released the September 2022 Economic Outlook Interim Report. The fall report also predicts that the BOC’s benchmark rate will amount to 4.5% in the coming year.

Canada’s Correcting Housing Market will Continue Cooling

Now that another interest rate hike is on the table for Canada, homeowners are wondering how this will impact the housing market.

Mortgage professionals, like RBC’s Robert Hogue, have been saying that the housing market is more so re-calibrating as opposed to crashing.

As predicted, before the September rate hike announcement, further rate hikes coming before 2023 will lead to mortgage rate increases. Aside from mortgage rate increases, a second rate hike will impact the purchasing habits of buyers. Not to mention sellers might be on the sidelines.

Read More: Rate Hikes Lead To House Price Fall?

Canada Mortgage and Housing Corporation (CMHC) is now calling for a much cooler forecast in the Canadian housing market based on the foreseeable increase in rates and inflation. Economics reporter Craig Lord says that CMHC’s most recent report reflects that “national average home price in Canada will fall 14.3 per cent by the second quarter of 2023.”

In an interview with Canadian Mortgage Professional, Senior CIBC economist Benjamin Tal said “the market is already slowing. Now you get an extra push, so [it] will continue to slow. I think that will be the story for the fall.”

For the time being, no further information has been released about the potential rate hike. Homeowners, buyers, and sellers will need to wait until the next financial policy decision for an answer. The Bank of Canada will make an announcement on October 26th, 2022.