Interest Rate Hikes Will Not Slow Sales or Home Price Increases in 2022: TD Economics

Published December 20, 2021 by Real Estate Leads

That the BOC is going to raise interest rates at some point in 2022 is pretty much a given now, and in part because they’ve have always mirrored what happens in the US to a large extent. This rise has been long overdue, but it has been backburnered and primarily because of low interest rates since early March 2020 in place while Canada weathered the COVID pandemic. The grace period has seemingly run out on that, and the BOC can’t keep rates as low as they have been any longer. The only question is how much they will rise. The guess right now is 6 basis points.

In as far as this relates to the real estate market in Canada, it has been suggested that a rise in interest rates might be helpful in cooling the housing market. This was suggested in large part when it comes to investors buying into the housing market. It is entirely true that there are going to be more people investing in housing beyond a principal residence any time it costs less to borrow money. This is to say nothing of REITs and the other layers in all of this too. A heated housing market is a mixed scenario for realtors working with investors or people hoping to sell their home for above asking.

Fewer homes going onto the market have been something of a counter to the FOMO trend that has people overleveraging themselves to buy homes, and for realtors who are struggling to drum up new business our online real estate lead generation system here at Real Estate Leads is an excellent way to take advantage of Internet marketing research to be tipped off to people ready to make a move in the market and perhaps not already working with an agent. A heated market offers more in the way of a lucrative career for realtors, but that will also mean many new real estate agents entering the profession.

Marginal Effect

Experts are saying that the coming BOC interest rate rises likely won’t have the market-cooling some are hoping they’ll have with real estate. If there is supposed to be more buyer hesitancy when interest rates are higher – and especially for investors buying secondary residences – why are the rate rises not foreseen to be effecting the volumes of home sales overall and / or bring down prices?

Nearly two weeks ago (Dec. 8th) the BOC announced it would hold the interest-setting overnight rate at 0.25%. This came with the indication that rates may move higher sometime in Q2 or Q3 2022. Bank economists at TD economics are forecasting 3 rate hikes for 2022 followed by another 3 more in 2022.

Banking and real estate industry experts are saying that the rapid increase in home prices and housing affordability challenges seen over the course of the pandemic will not have any major impact on housing demand and prices in Canada. Higher interest rates will dampen demand for housing somewhat, but a supportive macro backdrop plus flexible stress tests that offer ample room for rates to rise should keep market activity at levels that were seen before the spring of 2020 and the start of the COVID-19 pandemic.

Multi-Tier Supportive Background

The supportive background is going to be strong economic, employment and income growth to take place in 2022, and that increased immigration inflow will also strengthen housing demand in the face of any degree of downturn it takes because of the rising interest rates as set by the Bank of Canada.

Let’s keep in mind as well that a large chunk of the Canadian population has now aged into what are known to be the prime home buying year – 25 to 39, and there are many people in all different age demographics who see the expectations of future price gains coming from entering the real estate market.

TD expects mortgage rates increases will still come in below the current stress test qualification threshold but that sales will stay elevated to counter the impact of higher rates. It is expected that another strong year for price growth is how 2022 is going to play out for Canadian real estate.


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