What Will the Bank of Canada Do in 2023?

On Wednesday, June 15, the Canadian Real Estate Association (CREA) released its national housing statistics for the month of May alongside an updated forecast. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for members.

What will the Bank of Canada do in 2023? That’s the big question.

Did we already get to where we all thought we’d be over the course of two years in the space of two months? Will the current expected trajectory for interest rates carry on into next year? Will they stop at “neutral” or be forced by their singular inflation targeting mandate to keep raising rates?

This question is critically important for housing markets. The Bank of Canada is currently expected to get to somewhere in the 3.5% range on the overnight rate by their last meeting of 2022. They’re only at 1.5% now and they only have four announcement dates to go. A 75-basis point hike in July is pretty much baked in at this point.

What this means for mortgages

As we’ve pointed out before, the five-year fixed rate mortgages Canadians so love (at least until recently) have already priced most of that in. That’s good and bad. It’s good because it means five-year rates won’t jump by another 2% as the Bank of Canada does its thing over the remainder of 2022. However, it’s bad if you’re trying to negotiate a five-year mortgage rate compared to just a few months ago.

Ultimately what we’re seeing in mortgages, and by extension, housing markets is what has been expected and forecast for some time: higher rates leading to a slowdown to more normal levels of sales activity and a flattening out of prices.

The surprising part is how fast we got here, which adds an additional psychological element to the reaction in the market with a lot of people choosing to keep on the sidelines for now.

What will happen next?

We still have supply shortages all over the place. This won’t change overnight. But we’ve gone from that being the defining feature of the market, to borrowing costs being the defining feature of the market in very short order.

The 2021 market was a wild ride. That’s over. The 2022 market is now adjusting to a rapid rise in interest rates. It will find an equilibrium at some point based on what is currently expected. But back to the big question: what will the Bank of Canada do in 2023? We’ll have to wait and see.

Learn more on creastats.ca.

As our Director and Senior Economist, Housing Data and Market Analysis, Shaun Cathcart provides housing market intelligence to Boards, Associations, members, and real estate industry stakeholders. He spends much of his time analyzing and writing about Canadian housing trends. In his downtime, you can find him on his bike, on the volleyball court, and enjoying time with his family.

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