MNI INTERVIEW: Peaking BOC Rate Rekindles Housing-Royal LePage

Canada’s housing market is rebuilding momentum alongside the central bank shifting its message towards potential rate cuts this year, Royal LePage Real Estate Services Chief Operating Officer Karen Yolevski told MNI.

Some buyers are already shopping around as lower bond market yields pull mortgage rates down from recent peaks, she said, adding that consumer confidence, shaken last year by Governor Tiff Macklem's attempt at a rate pause before two more hikes, will revive now as he downplays chances of further tightening and hints at easier policy.

“That is driving some consumers off the sidelines, and we are starting to see a small uptick in activity, even in January, typically a very slow month for real estate transactions,” Yolevski said. Some pent-up demand has come as some buyers waited to see where rates would peak and others seeing if they could buy during a period where prices slipped, she said.

The BOC will start cutting rates in the second half of this year according to Yolevski, who said Macklem's comments Wednesday will make most families confident the next move will be a reduction. Macklem kept the key rate at 5% for a fourth meeting and said that if inflation slows as he expects he's more likely done hiking, while actively debating cuts isn't appropriate until it's clear price stability is being restored.

“It seems like we are staying the course and rate cuts are coming; we just have to be patient,” said Yolevski. (See MNI INTERVIEW: No BOC Rate Cuts Until Later In 2024-Conf Board)

CLEAR MESSAGE

“There was a clear message that the economy has stalled essentially since mid-2023, they made special note to point out that while core inflation is still a concern, they did state that a lot of stickiness is coming from shelter costs,” she said. “Higher interest rates on mortgages are driving a lot of core inflation, so when you start to strip that back, we already are much closer to target inflation levels that the Bank wants to be at.”

Resale home prices should climb more than 5% this year, a gain that's less worrying for buyers than jumps of 20% sometimes seen in recent years, Yolevski said. “Competition will continue to put sustained pressure on prices, and demand isn’t going to wane, it’s going to continue to grow, and we’re playing a little bit of catch up.” (See: MNI INTERVIEW: Alberta Rides High Oil, BOC Relief-Ex Official)

The fact that the Bank has held rates for a fourth straight meeting will encourage some buyers even if an actual rate cut comes later, she said. Sales climbed 8.7% in December according to the national realtor group CREA, a month where Macklem also suggested rates have peaked. "Canadians are looking at this and the predictions that this is going to be the year that we don’t talk about rates increasing anymore, but we start to talk about rates decreasing,” she said.

One downside is that households facing higher mortgage costs as they reset loans that typically come due every three or five years are scrimping elsewhere, Yolevski said. “What Canadians are doing is cutting back on discretionary spending, and prioritizing paying their mortgages.”

Asked if clients blame either the central bank or the government for the housing squeeze at a time when a lack of supply has dominated the headlines, she said: “There is a general sense of frustration.”