Wednesday will bring another interest rate announcement from the Bank of Canada and anyone with ears to the ground will be anticipating yet another hold. In fact, economists with TD, RBC, and Desjardins are all calling for a hold — albeit, with a dovish lean, as there are unmistakable signs that the bank’s monetary medicine is working.

“We’re clearly seeing signs of weakness in the Canadian economy: GDP per capita has been declining for almost two years now, we're continuing to see job creation, but it's not keeping up with population growth,” Desjardins Economist Marc Desormeaux tells STOREYS.

Desormeaux says these are the types of factors that bode well for the imminence of rate cuts, the first of which is expected to come between spring and mid-year, according to most forecasts, Desjardins’ included.

“We have the bank continuing to reduce rates in the second half of this year as it becomes clear that inflation is coming down and the economy is continuing to weaken,” says Desormeaux. “And so we'd have 3.75% on the overnight rate by the end of 2024.”

“The Bank Will Be Watching Housing Very Carefully”

Wednesday’s interest rate announcement comes on the cusp of the spring housing market, and Royal LePage President Phil Soper says that means that the bank has something of a balancing act on its hands.

“There's more at play here than just housing, but I can tell you, the bank will be watching housing very carefully. Even some of the early price growth indicators we've seen will be sending warning signals off inside the grand old Bank of Canada building in Ottawa,” says Soper. “If there was anyone there that was eager to get on with rate cuts, this will set them back in their chair and they're going to be a little patient. They don't want to trigger a crazy spring [housing] market.”

Soper says the bank will likely err cautious in its messaging tomorrow and with its timeline for cuts going forward. The expectation over at Royal LePage is that the central bank will hold off on the first cut until late June or even early July. However, Soper is also careful to point out that rate cuts aren’t necessarily the be-all and end-all for Canadians with sights set on the housing market.

“Based on our research, about half of Canadian consumers who would be in the market for housing are rate-focused, and the other half are home price-focused. And I'd say that the home price crowd is growing at a faster clip than the people who are fixated on interest rates. That group is getting smaller,” he says.

“Rate-Focussed” Buyers To Remain Sidelined

There has been speculation for some time that interest rate cuts are coming soon, and Right at Home Realty President John Lusink says that’s been great for market psychology, with buying and selling activity beginning to ramp back up well in advance of the spring. In fact, the latest figures from the Canadian Real Estate Association show that transactions were up close to 4% month over month, and over 20% year over year in January. Meanwhile, local real estate agents have been reporting the return of bidding wars.

Even so, affordability remains a concern for many Canadians, and Lusink says certain homebuyer hopefuls in his network will remain sidelined until the bank begins to meaningfully lower rates — first-time buyers working with smaller budgets, and homeowners who locked in mortgages when rates were at rock bottom and aren’t able to weather today’s tougher borrowing realities, for two.

“It's a bit of a mix, but there's a group sitting waiting for at least one, or probably more likely two, rate cuts before they jump back in,” says Lusink.

As such, Desormeaux cautions that any recovery in the housing market could be fairly muted compared to what we’ve seen happen in the past.

“We have a rebound built into our forecasts, but it's not a very strong one relative to history. Part of the reason for that is that we think affordability will be a constraint going forward, and it will limit the extent to which people who wish to get into the market are able to do so,” he says.

“I would also say that there are important regional implications. For instance, we're seeing young people especially leave provinces like Ontario and BC for places that are more affordable. Alberta has been a major beneficiary of that. So we could see a recovery in some provinces more than others just because there is such an affordability advantage.”