Canadians Delay Home Purchases, Awaiting Bank of Canada Rate Cuts

The anticipated resurgence in Canada’s housing market this spring may encounter a delay, according to recent findings.

A Bank of Montreal survey unveiled this week indicates that 72 percent of prospective homebuyers are postponing their plans, awaiting potential interest rate cuts by the Bank of Canada.

This figure marks a 4 percent increase from 2023, reflecting mounting concerns over the cost of living, inflation, and personal financial stability, as noted by BMO.

Of the nearly 40 percent intending to make a home purchase in the foreseeable future, only 13 percent aim to do so in 2024, while 26 percent are eyeing 2025 or beyond, according to the report.

Robert Kavcic, senior economist at BMO Capital Markets, suggests that Canadians anticipate a rate reduction in the latter half of the year, which could prompt some buyers to re-enter the market and bolster sales. However, Kavcic observes that interest rates still have significant ground to cover before reaching levels conducive to improved affordability.

While the Bank of Canada maintained its benchmark interest rate at five percent this month, it hinted at the possibility of a cut in June or July. Nevertheless, domestic and international factors may influence the timing of such a decision.

Despite a recent deceleration in Canadian inflation, the central bank remains vigilant, with close attention to the forthcoming consumer price index data expected on May 21, ahead of its June 5 meeting.

Additionally, persistent inflationary pressures in the United States pose a concern. Projections for a Federal Reserve rate cut have been deferred to December or beyond, potentially creating a divergence in policy rates that could exert pressure on the Canadian dollar and reignite inflation risks.