BC Home Sales could Drop 25% after Interest Rate Increase


There has been much speculation about what rising interest rates could do to Canada’s hot housing market.

Now a new study by the British Columbia Real Estate Association attempts to put some numbers on the future.

Home sales are expected to fall and home price growth will moderate, according to the report by chief economist Brendon Ogmundson.

“In the past, Bank of Canada tightening has usually led to falling home sales and flattening home prices, so it wouldn’t be a surprise to see the same happening in the upcoming round of tightening,” he said.

His study looks at four scenarios ranging from the Bank’s overnight rate returning to a pre-pandemic level of 1.75% to it reaching above 3%.

Under the first scenario, sales could be expected to fall by 25% at the end of two years.

* “If the Bank does raise its policy rate more aggressively in response to an overheating economy, then our models show that home sales would decline more significantly,” the study said.

One thing that makes such predictions more difficult this time around is the B.C. housing market currently has a record low number of active listings.

“With markets so out of balance, we expect home price growth to slow but to what extent depends on the final rate destination for the Bank of Canada and for Canadian mortgage rates,” said Ogmundson.

*The Bank of Canada could start that tightening as early as next week, a growing number of economists say.

TD Securities and Laurentian Bank made the Jan. 26 call Monday, while Scotiabank says the central bank “cannot afford” to wait any longer, reports Bloomberg. 

The Bank of Montreal has brought forward its call to March from April.

*Markets are pricing in a 75% chance of a Jan. 26 hike, with traders betting on as many as six rate increases over the next year.

* sent in email earlier to select contacts VHT 

Comments:
No comments

Post Your Comment:

The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Real Estate Board of Greater Vancouver (REBGV), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the REBGV, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the REBGV, the FVREB or the CADREB.