Yahoo Finance Summer rate hikes won’t bring pullback in home prices: RBC
"We see more balanced conditions moderating the pace of price increases, not triggering outright declines," the report says
Further interest rate hikes from the Bank of Canada this summer won’t be enough to cause a decline in home prices, according to a new report from RBC Economics.
“Our forecast for another 25 basis-point rise in the Bank of Canada’s policy rate should cool demand by a few degrees—at least for a time. We see more balanced conditions moderating the pace of price increases, not triggering outright declines,” Robert Hogue, assistant chief economist at RBC Economics, wrote in a note released late Thursday.
“We expect conditions to ease some more in the period ahead, however, bringing markets closer to balance.”
The housing market has rebounded more quickly than most economists expected this year, and many suspect some of the rebound was brought on by Bank of Canada governor Tiff Macklem’s messaging to Canadians in January that the central bank was pausing its hiking campaign.
The broad rise in home sales over April and May significantly narrowed the gap from pre-pandemic levels, Hogue says.
“Home resales are now just 6% below their (vibrant) February 2020 level,” he said.
“Prices generally remain below year-ago levels but possibly not for long in parts of Western Canada, Quebec and the Atlantic Provinces.”
Those stronger prices could entice more sellers to list their homes, which would bode well for June sales activity.
However, the central bank resumed its tightening campaign earlier this month and economists widely expect another quarter-point hike in July, potentially bringing the target rate to five per cent. Hogue expects that will tamp down the revived housing market, if at least temporarily.
“We continue to believe that the more probable scenario is a gradual recovery in both resales and prices until the Bank of Canada starts cutting rates next year,” he said.
“That said, we’ve been surprised by the market’s vigour to date and we could certainly continue to be going forward.”
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
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