Where Canadian Market-Watchers Say Interest Rates Are Headed

Wahi asked real estate industry professionals — including economists, academics, and REALTORS® — about their predictions for the Bank of Canada’s next rate announcement.

By Josh Sherman | 3 minute read

Leading up to each scheduled BoC rate announcement, Wahi surveys upwards of a dozen real estate leaders to gauge market sentiment and find out where the industry thinks rates are headed.

All 10 respondents to Wahi’s latest Rate Outlook Panel say the Bank of Canada is hitting the brakes on rate cuts following back-to-back 25-basis-point reductions in September and October. 

Panelists cite the performance of the labour market as well as inflation, which remains near the central bank’s target of 2% as reasons for a hands-off approach to close out the year.

In the days leading up to each rate announcement, Wahi surveys upwards of a dozen real estate industry professionals, including economists at some of Canada’s biggest banks as well as academics and analysts. Respondents to Wahi’s Rate Outlook Panel are asked whether they anticipate a rate cut — and, if so, by how much — as well as the reasoning behind their decision.

“The Bank will hold rates steady this time,” says Peter Norman, vice president and economic strategist at Altus Group. “There remains a balance of risk, including the lingering uncertainties over the continuing impacts from trade tensions, but recent economic data has been showing a modest strengthening.”

Penelope Graham, mortgage expert and director of content at Ratehub.ca, agrees. “The latest data reports have given the Bank all the rationale it needs to assume a holding pattern,” she says.

Graham and Norman point not just to the labour market but also recent growth in the economy as a reason to maintain the current overnight rate of 2.25%. Canadian GDP increased by 2.6% in the third quarter of the year, surprising market-watchers.

The Bank of Canada typically uses rate cuts to stimulate a sluggish economy — lower borrowing costs encourage economic activity such as spending and hiring — so a positive GDP reading tends to reduce the likelihood of lower rates.

“Inflation remains in the upper half of the Bank of Canada’s target range, GDP growth was positive in Q3 avoiding a technical recession, and the November jobs report showed a steep drop in the unemployment rate,” notes Moshe Lander, senior economics lecturer at Concordia University. 

For most of the year, the Canadian unemployment rate has been edging higher, but it has recently begun declining. In November, unemployment fell to 6.5%, down 0.4 percentage points from the previous month, according to Statistics Canada. Meanwhile, Canadian inflation clocked in a 2.2% on an annual basis in October.   

Lander does not rule out future cuts but says given current economic conditions there is no need for the BoC to rush. Rather, it can wait and see whether any clouds appear on the horizon. “It’s clear the central bank doesn’t need to add any stimulus to the economy at the moment,” says Lander.

Mark Fieder, president of Avison Young Canada, suggests it may be some time before we see another rate cut. “[The] general consensus is that the Bank of Canada will hold the overnight rate this week, and I anticipate they will pause for the longer term – barring any developments warranting a cut,” he says. 

While the broader economy may not necessitate a cut, he adds that the commercial real estate market would welcome a boost. “Lowering interest rates would be preferred for commercial real estate, stimulating investment opportunities for those who have been on the sidelines as well as those who have already been actively investing in sectors like multifamily, industrial, and retail,” he says.

Similarly, Pauline Lierman, vice president of market research at Zonda Urban, anticipates a hold but says the Canadian housing market could certainly use more relief. 

“This [rate hold] will not be great news to the ears of the real estate industry, especially in Ontario, which would gladly take an inch of additional affordability despite the bank rate being more of negligible impact on the market at present,” she says. 

The last time Wahi’s Rate Outlook Panel was unanimous in its prediction was this July, when panelists correctly predicted the BoC would hold rates at 2.75%.