March 8 2023
As a real estate agent, I want to share my perspective on the recent decision of the Bank of Canada to hold its target for the overnight rate at 4½%. This decision can have a significant impact on the housing market and the overall economy.
The good news is that global economic developments have evolved broadly in line with the outlook in the January Monetary Policy Report (MPR). While inflation is still too high, it is coming down due primarily to lower energy prices. In the United States and Europe, near-term outlooks for growth and inflation are both somewhat higher than expected in January. These factors could stimulate demand for homes in Canada and potentially lead to an increase in the real estate market.
However, the restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand. This could result in a slowdown in the real estate market and a potential decrease in home prices.
The labour market remains very tight, which can be positive for the housing market, as employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated. Wages continue to grow at 4% to 5%, while productivity has declined in recent quarters. This can affect the affordability of homes for buyers, as wages may not keep up with rising home prices.
Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians. With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.
Overall, the Bank of Canada’s decision to maintain the policy rate at 4½% can have mixed effects on the housing market. As a real estate agent, it’s essential to stay informed about changes in interest rates and economic developments to better advise my clients on their real estate investments.
The next scheduled date for announcing the overnight rate target is April 12, 2023.