What the Bank of Canada’s rate hold means for the spring housing market – Global News
The Bank of Canada held its benchmark interest rate steady on Wednesday — a decision real estate players and economists say will have major implications for the Canadian housing market.
After all, most market watchers point to the central bank’s aggressive interest rate hikes over the last year as driving the slowdown from the pandemic-era highs seen a year ago to the calmer real estate waters seen in many cities across Canada today.
The decision to hold interest rates steady could mean the bottom of the housing correction is in sight, experts say — but the uncertainty of future rate hikes still looms over prospective buyers and sellers.
Here’s what to know.
Canadian home sales begin 2023 with a 14-year low
Seasonality returning to the housing market, watchers say
Even before the Bank of Canada formalized its decision to pause rate changes on Wednesday — it all but telegraphed the move after a quarter-point hike in late January — some housing markets in the country were already showing signs of life following the pronounced downturn in 2022.
In Toronto, while home sales and prices alike were markedly down from a year earlier in February, both figures saw an uptick from January, according to the local real estate board.
Pritesh Parekh, a realtor with Century 21 in Toronto, says he’s seen clients “definitely hitting the gas” ever since the January rate hike and signals for a pause began.
With Wednesday’s rate hold coming to fruition, he sees that trend continuing at least through March.
Parekh says that among his peers in Toronto real estate, there’s debate about whether the rise in activity is a “blip” or if the housing market downturn has truly bottomed out ahead of a spring resurgence.
“There are people on both sides of the fence,” he says. “I’m expecting a boom, if I had to guess right now.”
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Phil Soper, the CEO of brokerage Royal LePage, tells Global News that while the actual volume of sales and prices might be lower than recent years, Canada’s housing market could be seeing the return of seasonal patterns after a slower December and January gave way to an uptick in activity last month.
The Bank of Canada’s rate hold affirms this return to seasonality, he argues, with the path now clear to the traditionally busy spring market. Buyers and sellers should have more confidence that prices will be steadier without additional rate hikes to depress home values, he says.
“In other words, we’ve reached the bottom of the cycle and it’s uphill from here,” Soper says.
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The Bank of Canada did not provide such certainty in its messaging on Wednesday, however.
The central bank maintained the wait-and-see stance for its policy rate and left the door open to additional rate increases in 2023 if there are additional economic shocks that knock its inflation forecast off-kilter.
Soper acknowledged that the prospect of additional interest rate hikes from the U.S. Federal Reserve, which could put pressure on the Bank of Canada to raise its own rate to keep pace and rally the Canadian dollar, is one significant upside risk that he’s watching. Multiple big bank economists in Canada reacting to the central bank’s hold on Wednesday echoed those concerns.
“It does remain one of the murky areas as we look ahead,” Soper says.
While Ratehub co-CEO James Laird agreed that Wednesday’s rate hold provides a bit “more certainty” for buyers wondering about what kinds of mortgage rates they can get this spring, he tells Global News that any fogginess in the rate path will tend to depress housing market activity.
“The more stability there is from a mortgage rate perspective, the stronger a foundation the housing market will have,” he says. “People really don’t like uncertainty, and when there’s uncertainty from a rate perspective, they tend to put off that buying decision.”
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A Royal Bank of Canada forecast released earlier this week indicates that a bottom for the housing market could be in sight for “sometime this spring,” but assistant chief economist Robert Hogue also pinned that outcome on having reached the peak of interest rates.
He noted that some markets such as Ontario and Atlantic Canada might hit that bottom early, while the Prairies and Quebec could see their correction more drawn out.
Hogue said he expects the recovery phase will be slow as a weak economy holds back buyers, with a more robust return to the market set for 2024 when and if interest rates start to fall.
Limited housing stock a significant factor
Parekh says that while he’s hearing from more clients so far in 2023, it’s mostly on the buyer side, rather than sellers.
As a result, inventory remains constrained for the buyers emerging from the sidelines and competition is heating up in some parts of the market, he says.
Data from the Canadian Real Estate Association (CREA) shows that despite an uptick in new property listings to start the year, housing stock is still “historically low.” January 2023 marked the lowest level for new supply in that month since 2000, CREA said, though February figures have yet to be released.
Multiple-offer scenarios are popping up on some attractive properties in Toronto, Parekh says. It’s happening mostly on well-staged homes in “desirable” neighbourhoods and moreso in the detached market than condos, from what he can see.
But if the sound of “bidding wars” is giving flashbacks of the pandemic highs when properties would see dozens of offers in a housing frenzy, Parekh cautions that today’s market isn’t even close to that.
“If we’re comparing from one year ago to today, 100 per cent there is a difference,” he says.
Bidding wars occurring in Saskatoon’s housing market.
Though the limited housing stock is pushing the existing buyers towards the same properties, he says many of today’s buyers have a bit more patience and are even willing to attach conditions in multiple-offer scenarios.
“I am seeing offers come in that might not be as ‘wild’ or ‘crazy’ as we’ve seen a year ago, but they’re throwing their hat into the ring and seeing what comes out of it,” Parekh explains.
Soper says that for buyers testing the waters this spring, “affordability” will continue to be a priority as still-high interest rates push house hunters to cheaper options.
As a result, he expects condos to outperform detached homes overall this year, and that buyers priced out of the most expensive markets will migrate to more affordable regions and cities such as Calgary, Edmonton and Halifax.
Current inventory trends suggest that, in many markets, sellers might retain the upper hand this spring with limited options for buyers, Soper says.
“It is very much still a seller’s market simply because there are fewer sellers out there than you’d normally see during a spring market,” he says.
Parekh agrees that getting sellers off the sidelines will be key to the kinds of moves buyers can make in the months to come.
“If the spring market starts to come with more supply, I think that will be a little bit more helpful in terms of how buyers can do something in this market,” he says.
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Why it matters that Canadian banks have dodged the deposit exodus plaguing some U.S. banks
The immediate panic around bank runs in the United States may have eased, but the flood of deposits that have exited regional banks over the past year has prompted a tightening of lending standards and raised the odds that the U.S. economy will tip into recession.
For now, at least, that cycle is much less of a concern in Canada.
As of March, overall deposits at U.S. banks shrank 2.4 per cent from the previous year, the steepest decline since the country’s savings and loan crisis in the 1990s.
When regional U.S. banks are drained of deposits by households and businesses worried about the safety of their money or seeking higher interest elsewhere, those banks make fewer loans to buy houses and fund small business. That, in turn, can lead to a credit crunch and recession.
The picture in Canada is different, with deposits continuing to rise, as Stephen Brown at Capital Economics noted this week.
While lending to businesses has tightened significantly in the U.S., he wrote, on balance Canadian banks have made loans only marginally more restrictive.
Canada’s banking sector “does not face the same immediate risks as in the U.S., since it is far more concentrated, limiting the chance that problems at small lenders will trigger a broader crisis of confidence,” he wrote.
Still, he warned, “indirect risks” from international bank problems will likely lead Canadian banks to be more cautious in their lending here, “particularly as their U.S. operations come under strain.”
Stocks Shake Off Bank Woes, Set for Quarterly Gain: Markets Wrap
(Bloomberg) — US equity futures edged higher after a key measure of US inflation stepped down last month by more than expected, and consumer spending stabilized, suggesting the Federal Reserve may be close to the end of its rate-hiking campaign. The dollar pared an advance.
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Excluding food and energy, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3% in February, slightly below the median estimate of 0.4% in a Bloomberg survey of economists. The overall PCE climbed by the same amount, Commerce Department data showed Friday.
Contracts on the S&P 500 rose 0.2%, while those on the tech-heavy Nasdaq 100 were little changed, with the underlying index set for its strongest March since 2010.
Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied in premarket trading after he became the first former president to be indicted. Other Trump-linked stocks also gained.
If equities “end the week in the green, that’s a big deal considering how almost disastrous the rest of the month was,” said Craig Erlam, a senior market analyst at Oanda. “Confidence is easily shattered and difficult to restore and a positive end to the week would send a strong signal that investors are feeling reassured by the lack of turmoil recently.”
Treasury yields drifted following Friday’s US data at the end of a quarter of wild swings. Investors have struggled to adjust for banking collapses and the shifting outlook for interest rates amid high inflation and threats to economic growth. The two-year yield was around 4.11% Friday while the 10-year maturity was about 3.53%.
Traders remained on guard for any choppiness amid quarter-end rebalancing from pension funds and options hedging activity. And they continue to debate the extent to which policy makers may cut interest rates this year. Several strategists have said markets are wrong to expect easing by the Fed this year as the labor market remains robust, though US unemployment claims ticked up for the first time in three weeks.
A round of Fed speakers on Thursday suggested more monetary tightening was necessary to quell inflation, even after the collapse of three US banks this month. Boston Fed President Susan Collins said tightening was needed, while Richmond Fed President Thomas Barkin said the Fed can raise rates more if inflation risks persist.
In Europe, euro-area inflation plunged by the most on record, but a new high for underlying price gains highlighted the tricky task facing the European Central Bank as it decides how far to lift interest rates. Consumer prices rose 6.9% from a year ago in March — down from 8.5% in February and less than the 7.1% median estimate of economists, but core inflation quickened to 5.7%.
Elsewhere in markets, oil headed for a weekly surge of more than 7% amid ongoing disruption to Iraqi exports. Gold was little changed. And Bitcoin was set to end its best quarter since March 2021 with a gain of about 70%.
Key events this week:
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 8:49 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index rose 0.7%
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.2% to $1.0882
- The British pound was little changed at $1.2381
- The Japanese yen fell 0.2% to 132.95 per dollar
- Bitcoin fell 0.3% to $28,060.63
- Ether rose 0.5% to $1,804.69
- The yield on 10-year Treasuries declined two basis points to 3.53%
- Germany’s 10-year yield declined four basis points to 2.33%
- Britain’s 10-year yield advanced one basis point to 3.53%
Rogers takeover of Shaw approved, with conditions
The federal government has approved the multi-billion-dollar merger of telecom companies Rogers and Shaw, but with conditions that Ottawa insists will make the deal good for consumers.
François-Philippe Champagne, minister of Innovation, Science and Industry, said at a press conference Friday that the government has approved the transaction first proposed in 2021.
As part of the deal, Shaw’s wireless business, Freedom Mobile, will be sold to Quebec-based Videotron.
The approval comes with 21 conditions that the government says are “legally enforceable,” including that Videotron will start to offer plans that are comparable to those currently available in Quebec, and they can’t sell the wireless assets to anyone else for at least a decade.
Videotron must also:
- Offer 5G service everywhere Freedom currently operates within two years;
- Offer service in Manitoba via MVNO;
- Increase the data allotments for existing Freedom customers by 10 per cent.
“Today, I am informing Canadians that I have secured on their behalf unprecedented and legally binding commitments from Rogers and Videotron. And, after imposing strict conditions, the spectrum licences of Freedom Mobile will be transferred to Videotron,” Champagne said.
“This transfer follows a series of agreements signed by the parties that will ensure that this new national fourth player will be in it for the long haul, be able to go toe to toe with the Big Three, and actually drive down prices across Canada.”
While Shaw’s mobile business and its more than two million wireless customers will move to Quebecor, Rogers will take over Shaw’s media and cable assets, most of which are in Western Canada. But Champagne says those assets are also subject to numerous conditions.
They include a requirement to create 3,000 jobs in Western Canada, to spend billions to expand its broadband and wireless networks, and also offer new lower cost plans to consumers in both.
“Should the parties fail to live up to any of their commitments, our government will use every means in our power to enforce the terms on behalf of Canadians,” Champagne said, noting that Rogers is subject to financial penalties of up to $1 billion for non-compliance.
Champagne pitched the deal as a win for consumers, but consumer watchdog group OpenMedia called the news “a dark day for the Internet in Canada.”
“Today’s decision is the largest blow to telecommunications competition and affordability we’ve ever seen,” executive director Laura Tribe said after the news came out.
The approval by government is the final step in a lengthy process that started 746 days ago, when Toronto-based Rogers first proposed to take over Calgary-based Shaw in a deal worth $26 billion.
The deal faced intense opposition from the start, and numerous regulatory agencies weighed in. The Canadian Radio-television and Telecommunications Commission signed off on the broadcasting part of the deal last year, but Canada’s Competition Bureau fought hard against the deal, but ultimately lost in a tribunal ruling last year.
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