As anticipated, the Bank of Canada (BoC) opted to hold its policy rate steady at 5% on Wednesday. In a statement, the bank cited “growing evidence that past interest rate increases are dampening economic activity,” including with respect to housing, where demand has softened considerably.

Even so, in addressing the media following yesterday’s rate announcement, BoC Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers expressed that home prices have not responded to rate hikes in the anticipated or desired way.

“Normally, house prices move pretty lockstep with interest rate increases. Most Canadians buy houses with credit, so they're one of the first things that respond to monetary policy,” said Rogers.

And while prices have indeed come down over the course of the hike cycle — the not-seasonally-adjusted, national average price has slipped from $796,000 in March 2022 to $655,507 last month — many month-over-month declines have been nominal. There were also a number of months where prices managed to rally and offset declines.

“Relative to the degree of rate increases, we're not seeing the decline in house prices that we would expect,” continued Rogers.

“There is a structural lack of supply in the Canadian housing market. So, really, until we address that supply issue, interest rates on their own are not going to help us get back to a housing affordability situation.”

BoC staff also spoke to mortgage realities confronting Canadians on Wednesday, saying that the bank is “paying really close attention to the mortgage renewal cycle.”

“Basically it’s monetary policy at work. As more households renew their mortgage at a higher rate, it puts downward pressure on spending. They have less money available to spend on other things, that dampens demand, that sort of gets the economy back in balance,” said Rogers.

“We are watching for the financial pressure that comes with that. We usually talk about that more in our Financial System Review — we've got an update to that coming in November and you'll hear more from us on that at that point.”