Benjamin Tal speaks on stage holding a microphone

Canada’s top banker says housing market will ‘wake up’ after first rate cut

A week out from the Bank of Canada’s (BoC) fourth interest rate announcement of the year, experts are saying there’s a high probability that there’s a rate cut in the cards. When the country’s first rate cut since 2020 does happen, the housing market will certainly respond, but Benjamin Tal, CIBC’s deputy chief economist, said some markets will be more active than others. 

I think the market will wake up, but it will be more in the detached segment of the market, not the condo segment. There just isn’t much interest in the condo market right now,” he said. 

Toronto’s spring market has been notably slower than usual for the season, with sales down and listings up year-over-year, and prices remaining almost flat.

However, if there’s more built-up demand than expected and the market heats up too quickly, Tal warned that it will be “problematic” for the BoC. “If we see a repeat of spring 2023, there’s risk of a pause. Back then, the BoC was tweeting about the possibility of pausing the interest rate hikes, and the market immediately heated up,” he said.  

He noted that it’s unlikely the BoC would implement one cut and then pause. “But it’s possible that they will announce two rate cuts and then stop. That would be if the housing market starts waking up too much after the first two cuts,” he said.

But this is predicated on inflation — which Tal emphasized is the mandate of the BoC, not the housing market. “If inflation is below target, then they will have to continue cutting regardless of what’s happening in the labour market.”

If a rate cut is announced, Tal said mortgage-holders will move with caution after the effects of the past few years. “What we’re seeing more and more people doing now is focusing on the one- to three-year rate. People basically don’t touch the five-year rate because they want to make sure that they’re around to refinance when mortgage rates are down.”

Over the next year or two, Tal anticipates mortgage-holders sticking with those shorter terms, before eventually moving back to five-year rates.

The economist previously predicted that the interest rate will bottom out in 2025, at around 3-3.75 per cent. When that happens, Tal said the housing market will go back to “semi-normal.”

“I don’t think it will be as strong as it was in the pandemic, no question about it, because interest rates will be higher than they were before the pandemic. And that will be the case, which is a good thing. Clearly, affordability will still be an issue. So I don’t see the market booming, but it will be much healthier than it is now.

For now, he noted that there’s one opportunity in particular for interested buyers. “Over the next year, there will be an opportunity for condo buyers because the condo market will remain relatively soft,” he said. “And that’s something that will change, because we know that presale activity is basically zero right now. Two years from now when the demand is still there, but supply is not, condo prices will start rising.” 

Article exclusive to STREETS OF TORONTO