The number of home sales in BC is expected to fall and home price growth will moderate because of rising interest rates according to a new report from British Columbia Real Estate Association examining the potential impacts of the likely Bank of Canada’s rate tightening.
The report is written by BCREA Chief Economist and explores both the historical impacts of the Bank raising its policy rate and a number of scenarios likely to play out in BC’s house market as a result.
To Tight? The Impact of Bank of Canada Tightening on BC Housing Markets.
The Bank of Canada is widely expected to begin raising its overnight policy rate in the near future and Canadian mortgage rates have already begun to rise in anticipation of tighter future monetary policy.
The results of our analysis, which combines a historical perspective with supporting model simulations, indicate that the monetary tightening cycle is likely to cause declining home sales and a flattening of home prices. The severity of the decline in sales and the potential decline in home prices will depend on the final destination for the Bank of Canada and for Canadian mortgage rates.
The presence of a mortgage stress test, though hard to formally capture in our simulations, could mean a significant departure from historical norms especially if it is not re-calibrated for sharply higher mortgage rates. Fortunately, the Office of Superintendent for Financial Institutions has committed to reviewing the minimum stress test rate on an annual basis.