BoC concerned a hot housing market might be around the corner

The Bank of Canada recently cut its benchmark interest rate from 5.00% to 4.75%, but decision-makers worried that this move might overheat the housing market.

They felt more confident that inflation would continue to move toward the 2% target, as core inflation has been declining for four months. If this trend continues, further rate cuts could happen gradually, with decisions made one meeting at a time.

However, there are risks. Lower rates might boost the housing market too much, causing prices to rise and inflation to pick up again. Additionally, many homeowners will face higher mortgage payments as their loans renew, which could reduce spending and slow economic growth more than expected.

On the other hand, consumer spending could bounce back if confidence improves and wages keep rising. Economist Michael Davenport predicts that higher mortgage payments will cut consumption in the coming months, possibly leading to a mild recession this year. This could prompt the Bank of Canada to cut rates to 2.25% by late 2026. But if the economy stays strong, wage growth continues, or house prices rise quickly, the Bank might delay cuts or even increase rates again.

The Bank of Canada's next rate decision is scheduled for July 24.

This blog was inspired by and based on the article "Canadians Leaving Money on the Table by Not Negotiating Their Mortgage Renewal Rates" from Canadian Mortgage Trends.