New Bank of Canada Announcement: Bank of Canada maintains policy rate, continues quantitative tightening

The Bank of Canada has announced it is maintaining the policy rate at 5% and continuing quantitative tightening. In this article, we'll explore the latest developments in the Canadian economy and how they might impact the real estate industry.

The Bank of Canada's decision to maintain the policy rate at 5% is indicative of their commitment to curbing inflation and ensuring the long-term stability of the Canadian economy. This decision reflects the ongoing global economic slowdown and decreasing inflationary pressures affecting various sectors.

Economic Overview

Global economic conditions have shifted, with the United States experiencing stronger growth initially due to consumer spending but now anticipating a slowdown from past policy rate increases. Similarly, the euro area has seen weakened growth alongside reduced inflation, largely influenced by declining energy prices.

Canada's Economic Landscape

Within Canada, economic growth has stalled, as seen in the flat GDP growth over recent quarters. Higher interest rates have limited spending, leading to minimal consumption growth and stagnant business investment.

Despite some positive contributions from government spending and new home construction, the labor market has shown signs of weakening, with slower job creation and rising unemployment rates. Even so, wages are still rising by 4-5%.

This slowdown in economic activity has helped ease inflationary pressures across different sectors. Factors such as reduced gasoline prices and increases in shelter prices contributed to October's CPI inflation rate dropping to 3.1%. 

The Governing Council, considering the impact of monetary policy on spending and prices, has decided to maintain the policy rate at 5%. 

Impact on the Canadian Housing Market

The Bank of Canada's decision to maintain the overnight rate at 5%, coupled with the ongoing quantitative tightening policy, is likely to have significant implications for the Canadian real estate market.

With interest rates remaining at higher levels, borrowing costs for mortgages are expected to continue rising, potentially dampening demand for housing. The previous surge in housing prices, especially in some urban centers, may experience a slowdown or even a correction as affordability challenges intensify due to elevated mortgage interest costs.

However, the pace and extent of these impacts may vary across regions, with some areas potentially experiencing more pronounced adjustments than others based on local market dynamics and supply-demand imbalances.

What this means for Sellers:

• Potential impact on property prices: Sellers might experience a moderation or even a decrease in property prices, particularly in areas where prices had surged previously.
• Longer time on market: Higher interest rates could lead to decreased buyer demand, resulting in properties taking longer to sell.
• Adjusting pricing strategies: Sellers may need to reassess and potentially lower their asking prices to align with market conditions and improve property marketability.
• Consideration of negotiation: With a potentially softer market, sellers might face increased negotiations and bargaining power from buyers.

What this means for Buyers:

• Improved affordability in some areas: Cooling demand could lead to reduced competition among buyers, potentially making properties more affordable in certain markets.
• More time to decide: Buyers may have more time to consider their options and negotiate terms due to a potentially slower-paced market.
• Potential for advantageous offers: With sellers adjusting prices and a potentially softer market, buyers might find opportunities for better deals or more favorable terms.

Conclusion

The Bank of Canada's decision to hold the policy rate at 5% and continue with quantitative tightening highlights the delicate balancing act between controlling inflation and stimulating economic growth. 

The next announcement for the overnight rate target is scheduled for January 24, 2023.  

If you are looking to buy or sell a home in Ottawa, contact us today to learn more.

Note: This blog post is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified professional for personalized guidance related to real estate and investment decisions.