After almost one year of interest rate hikes, the Bank of Canada has finally announced it is holding rates.

In January, the BoC raised its Overnight Lending Rate by 0.25%, increasing the cost of borrowing to 4.5%, the highest level since December 2007. However, Canada’s Consumer Price Index rose 5.9% in January, indicating that inflation is moving in the right direction.

Borrowers May Have to Wait Until 2024 for Rates to Decrease

Although the rate hold signals some hope for Canadian borrowers, many have already reached and exceeded their maximum budget and are eager for rates to decrease. With inflation still above the Bank’s 2% target, this hold likely does not mark the end of the rate hikes. Governor Tiff Macklem indicated that inflation should be near 3% by the middle of 2023 and hopefully reach the 2% target in 2024. “If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further,” said Macklem.

Canadians that are waiting for interest rate relief may have to wait until the end of 2023 or 2024 for rates to drop. However, those with variable-rate mortgages and anyone with a home equity line of credit (HELOC) can budget for the next month as there will be no change to their payments.

The Impact on Canadian Real Estate

James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender explained that because the Bank alluded to the need to hike rates in the future, we will likely see fixed rates rise. However, prospective buyers should lock in a pre-approval to hold today’s rates for up to 120 days, “This will allow them to have today’s rates secured, and if rates drop further they will still be eligible for the lower rates,” said Laird.

Since the Bank alluded that more interest rate hikes can be expected this year, home values will likely experience downward pressure. Currently, home prices have rolled back to 2021 levels in many major markets across Canada. Read more about that here. As prospective buyers’ budgets tighten, motivated sellers should work with a local real estate agent to price their homes at fair market value and drive optimal interest.

BoC : Interest Rate Hikes Paused. How Long do Borrowers Have to Wait for Relief? by Patti Cosgarea | zoocasa