House prices in Canada have gone down by 18% since their highest point in March 2022. That’s a drop of $171,500! In December alone, prices fell by 1.2% from November, marking the sixth month in a row of price drops. According to the Home Price Benchmark Index for single-family houses by the Canadian Real Estate Association (CREA), the national price is now $779,100, which is the same level it was at in September 2021. Compared to December a year ago, prices are up by just 1% after big drops in 2022.
Many major markets across Canada have seen big losses in house prices. Even in Calgary, prices have dropped from their record highs. Let’s take a closer look at what’s happening in different markets.
The End of Easy Money
The Bank of Canada has changed its policies, making money less easy to get. It raised its overnight rate to 5.0% in July and has kept it there. Inflation for goods and energy has gone down, but inflation for services and rent is still high. The Bank of Canada isn’t in a hurry to lower rates because it doesn’t want to make inflation worse. It’s taking a careful approach, waiting to see how things go.
At the same time, the Bank of Canada is reversing the effects of its massive money-printing during the pandemic. It has already reduced 57% of the $455 billion in QE assets that it added during the pandemic.
Predicting the BoC Overnight Rate in 2024
There is some disagreement within the Bank of Canada about keeping the policy rate to control inflation. However, experts think the rate won’t be increased further. The current rate seems to be enough to control inflation as we get closer to the 2% target. Experts predict we might see a few small rate cuts in 2024.
2022-2024: The Fight Against Inflation
Starting in March 2022, rates began to rise to control increasing inflation. The first increase was 25 basis points (bps) in March 2022, followed by another 50 bps in April 2022, reaching a rate of 1.00%. The rate went up again by 50 bps in June 2022 to 1.50%.
In July 2022, there was a big increase of 100 bps, setting the overnight rate at 2.50%. Inflation rose to 8.1% in June from 7.7% in May, which was the largest annual increase since January 1983. The rise in June was mainly due to higher fuel prices.
The Bank of Canada kept raising the rate to fight inflation. In September 2022, the rate increased by 75 bps to 3.25%. Officials said that more increases were needed because inflation was still high. Surveys showed that people expected short-term inflation to remain high.
Several factors continued to drive up prices, including COVID-19 outbreaks, ongoing supply disruptions, and the conflict in Ukraine. As 2022 ended, two more rate increases of 50 bps each took place in October and December, ending the year with a policy rate of 4.25%.
In 2023, the Bank of Canada raised its policy rate by 25 bps three times, ending the year at 5.00%. So far in 2024, the BoC has kept the 5.00% policy rate, as the monetary policy works its way through the economy, slowly bringing inflation under control and closer to the 2% target.
By switching to clean energy, Canada can help lower prices and make life more affordable. Clean energy is getting cheaper than fossil fuels, and this trend will continue. Government policies and investments in renewable energy and improving the electricity grid are important to reduce dependence on fossil fuels and make life better for Canadians.
