How Each BoC Interest Rate Hike (And Hold) Has Implicated Home Sales

Tomorrow marks yet another Bank of Canada (BoC) interest rate decision — the seventh and second-last of the year — and experts are unanimously calling for a pause.

Over the past few days, economists across the board have mused that a hike tomorrow would be “overkill” (Dejardins) and is “unlikely” (RBC), and have pointed to the sluggish Canadian economy as reason enough for the BoC to hold the policy rate steady at 5% for the remainder of the calendar year.

Scotiabank’s Jean-François Perrault said in a global forecast on Monday that, notwithstanding any “upside surprises” to inflation, the BoC “should be done raising interest rates in this cycle” altogether.

At the same time, amid strong underlying momentum in inflation and “real wage growth that is wildly outpacing productivity,” Perrault also noted that Scotiabank has “reduced” the number of rate cuts anticipated in 2024.

“We continue to expect rates to start their descent at the tail-end of the second quarter and for them to end 2024 at 4%,” he said. “A further 75 bps of cuts are expected in 2025, for a year-end rate of 3.25%.”

Though tomorrow is unlikely to bring any dramatic moves on the bank’s part, nothing is certain. We are currently in the midst of the most rapid hike cycle in BoC history, and there are a lot of moving parts. For some context, here’s a look back on the rate decisions that have brought Canadian housing to such an unprecedented point in time.

March 2, 2022: BoC Kicks Off Hike Cycle, Raises Policy Rate To 0.5%

In March of last year, the bank put an end to the ultra-low rates that characterized the pandemic era by increasing its overnight lending rate by 25 basis points to 0.50%, citing “elevated” housing market activity as one of the motivating factors for this initial hike.

In the immediate aftermath, the Canadian Real Estate Association (CREA) reported that March saw a ‘definite slowdown’ in sales activity (down 5.4% month over month), following a surge observed in February 2022. While around two-thirds of local markets were in sellers’ markets territory at that time, CREA noted that the remainder had entered into balanced market territory.

April 13, 2022: BoC “Begins Quantitative Tightening,” Raises Rate To 1%

The BoC opted for an increase of 50 basis points in April of last year, noting at the time that they were ‘ending reinvestment and beginning quantitative tightening.’

That month, CREA reported that national home sales slipped close to 13% month over month as mortgage rates “shot higher.” This drop in sales put monthly activity at the lowest level since the summer of 2020. By this time, a little more than half of local markets had entered into balanced market territory. The following month, in May 2022, Canadian home sales fell an additional 8.6% (month over month).

June 1, 2022: BoC Raises Rate To 1.5%

An increase of 50 basis points brought the rate to 1.50% in June of last year. This followed a stronger-than-anticipated inflation jump of 6.8% in April.

Unsurprisingly, Canadian home sales saw another dip in June, dropping 5.6% on a month-over-month basis, according to CREA. CREA also noted at the time that monthly activity was “slightly below average” for the month of June and that nearly three-quarters of local markets were balanced market territory.

July 13, 2022: BoC Raises Rate To 2.5%

In the height of summer, and despite an obvious pullback in home sales, the BoC tacked another 100 basis points to its policy rate, bringing it to 2.5%.

CREA noted at the time that, while demand was still there, many would-be homebuyers were opting for a ‘wait and see’ approach amid the escalating cost of borrowing. As such, July 2022 saw national home sales slip 5.3% month over month. As well, said CREA, sales were down in about three-quarters of all local markets, led by the Greater Toronto Area, Greater Vancouver, the Fraser Valley, Calgary, and Edmonton.

While sales continued to edge down in August, activity slipped only nominally (down 1% on a month-over-month basis), which (former) CREA Chair Jill Oudil noted “could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course.”

September 7, 2022: BoC Raises Rate To 14-Year High Of 3.25%

September of last year brought yet another rate hike from the BoC — a 75-basis-point increase that landed the rate at 3.25% (a 14-year high). Despite what seemed like less weakness from the housing market in August, the bank said at the time that higher mortgage rates were working as anticipated: by slowing the housing market “following unsustainable growth during the pandemic.”

Fall 2022 then kicked off with a 3.9% dip in home sales (between August and September), marking “a slight increase in the current sales slowdown that began with the Bank of Canada’s first rate hike back in March,” according to CREA. As well, the national sales-to-new listings ratio (SNLR) eased to 52% (down from 53.6% in August), putting it deeper into balanced territory.

October 26, 2022: BoC Raises Rate To 3.75%

The BoC opted for another hike in October 2022. This time around, an increase of 50 basis points brought the rate to 3.75%. “The effects of recent policy rate increases by the bank are becoming evident in interest-sensitive areas of the economy,” said the bank at the time, pointing to the fact that housing activity had “retreated sharply.”

Even so, CREA reported that Canadian home sales actually increased (by 1.3%) between September and October. This was the first monthly gain since February. As well, said CREA, about 60% of all local markets saw positive sales activity in the month, with Greater Vancouver leading the way.

However, in November, sales returned to a downward trend, slipping 3.3% month over month. CREA Senior Economist Shaun Cathcart said at the time that November was a “quiet” month for Canadian housing and cautioned that the winter would be similarly downcast thanks to the BoC’s October interest rate hike.

December 7, 2022: BoC Raises Rate to 4.25%

Despite still-elevated inflation, the BoC capped off the calendar year with a sixth straight interest rate hike: a 50-basis-point raise that brought the rate to 4.25% in December 2022.

That same month, national home sales managed a 1.3% month-over-month jump, according to CREA, while the SNLR rose to 54.4% (up from 50.2% in November), bringing it closer to sellers’ territory. Oudil noted at the time that “the market’s adjustment to higher rates may be mostly in the rear-view mirror at this point.” She added that CREA anticipated spring would “bring buyers back off the sidelines.”

However, 2023 started off at a low point, with Canadian home sales slipping 3% month over month in January. The year-over-year sales metric came in at a 14-year low. Cathcart, at the time, likened early 2023 to 2019, “where after a year in which it became much harder to qualify for a mortgage, everyone was wondering if the market would pick up in the spring.”

January 25, 2023: BoC Rings In New Year With Hike, Raises Rate to 4.5%

The new year brought worsened interest rate realities for Canadians, with the BoC raising the rate once again by 25 basis points to 4.50% near the end of January. However, they signalled that rates were close to their ceiling as CPI was expected to dip to 3% by mid-year.

Despite the hike, February 2023 saw a 2.3% month-over-month uptick in Canadian home sales, with the most significant gains recorded in the GTA and Greater Vancouver. Oudil, at the time, forecasted a “more robust market to come.”

March 8 & April 13, 2023: BoC Holds Rate At 4.5%

At long last, March of this year brought the first rate pause of the cycle, with the BoC opting to maintain the rate at 4.50%. This move, in part, was brought on by “flat” economic growth and easing inflation. The BoC saw the pause through to April’s decision as well.

During that time, Canadian housing rallied considerably. In March, national home sales rose 1.4% month over month in March. In April, they “surged” another 11.3%. In May, they jumped up another 5.1%. During these three months, SNLR swung above 60%, marking sellers’ market conditions.

“With interest rates at a top, and home prices at a bottom, it wasn’t all that surprising to see buyers jumping off the sidelines and back into the market in April,” said Cathcart in April.

June 7 2023: BoC Commences Hikes, Raises Rate To 4.75%

Alas, all good things must come to an end. In June of this year, the BoC went for a hike of 25 basis points, bringing the rate to 4.75%, citing stronger-than-anticipated GDP and the first inflation uptick (in April) in 10 months.

That same month, CREA reported that Canadian home sales — which edged up only 1.5% month over month — were showing signs of “stabilizing.” While one assumption could be that the hike had an imminent impact on buyer mentality, Larry Cerqua, Chair of CREA, also pointed out a “recovery in new listings,” which helped to satiate demand.

As well, CREA reported that the SNLR came in at 63.6% in June, easing 66.4% in May and continuing to point to sellers’ market conditions.

July 12, 2023: BoC Brings Rate To 22-Year High

July marked another BoC rate increase — this time a 25-basis-point hike brought the rate to a 22-year high of 5%. Not surprisingly, the bank attributed this move (in part) to “some pickup” in the housing market.

The back-to-back rate hikes over the summer pushed Canadian home sales down 0.7% month over month in June, according to CREA, while the SNLR eased to 59.2% in the month as well, which, technically, brought the market back into balanced territory.

The downcast narrative continued in August, with national home sales sliding another 4.1% month over month. "August was the first full month of housing data following the Bank of Canada’s July rate hike, so a dip in activity was expected,” noted Cathcart at the time.

September 6, 2023: BoC Holds Rate At 5%

And that brings us to September. Just last month, the BoC opted for another rate hold, citing the slowing Canadian economy. Even so, the bank indicated that there’s no ruling out further rate hikes at this stage in the game.

National home sales continued to pull back in the month, with CREA reporting a month-over-month dip of 1.9% in September 2023. Meanwhile, the SNLR eased to 51.4% (an unmistakable place of balance). However, some individual markets tipped into buyers’ territory last month. In Toronto, for instance, the SNLR slipped below 30% in the month, putting it firmly in a buyers’ market.

The BoC’s next interest rate decision is scheduled for tomorrow — Wednesday, October 25, 2023 — at 10:00 a.m.