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Housing Market Stronger Than Expected - Bank of Canada leaves Rates Unchanged

10 Mar 2021

In Canada, the central bank announced its interest rate decision today. The Bank of Canada left interest rates and its asset purchase program unchanged.  As was widely expected, the Bank of Canada has maintained its key interest rate target at 0.25%. The bank indicated that it would not raise borrowing costs before damage from the pandemic is fully repaired.

 The Bank acknowledged that the economic recovery is ahead of expectations, with consumers and businesses adapting well to containment measures during the second wave of Covid-19, and housing market activity being much stronger than anticipated.

However, the BOC noted that Canada is still experiencing economic slack and uncertainty, with unemployment continuing to be a factor, particularly among low-wage workers, young people and women. The biggest threat are the highly contagious variants, with localized outbreaks and restrictions potentially restraining growth and impeding the recovery.

How will the Bank of Canada's Policy Interest Rate affect the housing market? 

The Bank of Canada’s measures have widely been seen as fuel for the housing market’s improbable boom during the pandemic, but the central bank says it's surprised by the strength.

“Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected,” it said.

Why governments don't mind rising house prices

Governments on all levels have said they want to make housing more affordable as prices home prices continue to rise. They’ve introduced measures to cool markets, but real estate accounts for a big chunk of economic growth. As realtors with over 40 years combined experience on the front lines, we help our clients make sense of it all, with advice for anyone buying or selling a home. Real estate price appreciation is a positive for our economy. Since the housing market accounts for such a large segment of the Canadian economy as a whole. Record-low interest rates and strong demand for more spacious accommodation are pushing Canadian home prices and sales to record highs.  

Housing market activity has been much stronger than expected in both 2020 and continues in 2021. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment. Oil and other commodity prices have risen. The Canadian dollar has been relatively stable against the US dollar, but has appreciated against most other currencies.

In Canada, the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures.  GDP grew 9.6% in the final quarter of 2020, led by strong inventory accumulation. GDP growth in the first quarter of 2021 is now expected to be positive as well. 


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