By Ketki Saxena
Investing.com -- The recent surge in interest rates is anticipated to decelerate Canada's housing market activity. However, a prolonged downturn seems unlikely, according to Doug Porter, Chief Economist at BMO (TSX:BMO).
In a conversation with Canadian Mortgage Professional, Porter emphasized that while the Bank of Canada's latest rate hike might moderate activity levels in the real estate sector, it wouldn't bring them to a halt.
"This backup in rates will throw a bit of a wet blanket on the housing market.", but he also pointed out that it would not send things “into a tailspin by any means. I think it will remain relatively resilient, but it’s going to be tough sledding for the housing market with this latest backup in rates and the warning that rates are going to stay at these kinds of levels for a while.”
The Bank of Canada recently raised its benchmark policy rate reaching over 22 years high at 5% after two consecutive hikes each by 25 basis points. This marks ten increases since March last year bringing its interest rate up to the current level of 5%.
Porter expressed concern stating: "I’m still convinced that we have yet fully processed these past-year backups in rates let alone these two most recent ones.”
The Bank of Canada's interest rate hike spree has, however, done little to cool the red-hot Canadian housing market. As Porter notes, "The first half of this year brought unexpected vitality back into the housing market. At one point it even entered seller’s market territory as per numerous metrics across key markets".
Porter also notes that the Bank Of Canada appears to be paying close attention to the housing market - more so than ever before.
In its statement last Wednesday, the Bank of Canada indicated the pickup in Canadian housing, noting that new construction and listings continued to lag, while high levels of immigration and population growth continued to add pressure to the market.
“I did find the fact that they devoted two sentences to the housing market in their policy statement interesting,” Porter said. “In the past, they wouldn’t talk that much about housing, but I do think they’re keeping a close eye on things and using it as a gauge to see how the economy is dealing with higher interest rates."
In terms of what's next for the Canadian housing market, Porter believes that "After a nice little bloom this spring, I think things will just kind of bounce along, move sideways for six to 12 months.”