Real Estate professionals have stated they are already seeing a “cool off” in recent weeks in the Canadian housing market. What’s the reason for this sudden change?

In an effort to tame inflation, central banks across the world have indicated that they intend to hike interest rates. The Bank of Canada kicked off its first of an expected series of rate hike announcements in early March, with its most recent announcement today. The BOC announced a 0.5% increase to the benchmark interest rate, taking interest to 1%. This marks the first oversized rate increase in 22 years. The bank of Canada has expressed their intention to “act forcefully” to tame inflation. CIBC stated in their most recent update that interest rates could hit 1.5% by the end of the year, and the 2.25% mark by September 2023.

Some within the real estate industry noted a shift in the market quickly after the March rate increase announcement was made. Listing showings that would typically see 100+ potential buyers have begun to slow significantly. This may not be the case for all markets, but some red-hot markets (like the GTA) have been seeing this shift.

The market still shows promise, as there remains a large supply-demand discrepancy, but continued rate increases could trigger a correction to rampant price appreciation. To slow inflation, the Bank of Canada may be willing to weather a dip in the housing market. Considering the warp-speed appreciation seen throughout the pandemic, the market could very well sustain a 5-10% drop.

It remains to be seen, as some experts see inflation continuing to rise above 2%, while others believe the Bank of Canada would think better of it, to avoid a spiral effect to the housing market.

Time will tell and we will have to wait to see the exact effects on the economy and market.

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