January 29th, 2022 | Toronto

Monetary Policy Report – January 2022

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All eyes were set on the Bank of Canada this past week as it was set to make its rate announcement & provide its economic outlook. With inflation at a record 4.8% in Canada, the expectation by many was a gradual increase of the overnight lending rate. These expectations came on the heels of calls from the Big 5 asking the BoC to make some moves in hopes of cooling the (housing) market. In addition, according to Bloomberg calculations, markets have already priced in six increases, or a percentage point and a half of higher borrowing costs. So naturally, most thought that the interest rate hike was all but certain on Wednesday.

But, keep in mind, just this past December, the BoC had said they wouldn’t raise rates until April 2022 – and so far, they’ve kept their promise! (at least until their next announcement, scheduled for March 2nd) Rates remain the same.

The BoC announced that they’ll be keeping their current policy rate unchanged at 0.25%, citing the Omicron variant as weighing on activity in the first quarter and that its economic impact will depend on how quickly this wave passes.

So, what does this mean for the Canadian (Housing) Market? And for the Canadian Economy as a whole?

Expect housing prices to keep climbing. And not just here in Toronto, or in Ontario, but rather across the entire Country.


Because … in short, money is cheap, demand is high, and supply is low … look at these stats by the Canadian Real Estate Association – a snapshot for December 2021 as compared to December 2020:

  • Home sales are down 9.9% across Canada (less trading)
  • New listings are down 15% across Canada (less inventory)
  • The average price of homes sold across Canada are up 17.7% (higher prices)

So, the math works like this …

less trading + less inventory + big demand + cheap money = higher prices.

The irony of it all is that even if the BoC announced a rate increase (or for that matter does so in March – which we do expect), the immediate impact is actually quite the opposite of the common ‘cooling’ expectation – as Buyers flood the market trying to secure homes at the lower rates.

But, long term, if the BoC doesn’t start acting and all of a sudden decides to come from behind and increase rates at a more rapid pace to effectively catch-up, this then could have some damaging effects on housing prices – as much as 25% according to David Rosenberg.

Now here’s the thing, arithmetically the 25% makes sense as it’s an objective evaluation of the risks.

But, predictions over the past few decades have rarely fallen in line with objective evaluations. It’s why we tell our Buyers/Investors that the Market Value of any home is actually the Objective Value + Subjective Value. Meaning, we can run the #s, but ultimately it boils down to who’s buying and their WHY … if they have the means, they’ll purchase … and there’s a lot of “them.”

So, bottom line, know your WHY and act accordingly. Don’t try to time the market, this rarely works.


  • The Fed + the BoC are very aware of our current market
  • Housing isn’t their only concern & therefore they’re not inclined to raise rates just yet
  • In light of the past 2+ years, and the fragility of the economy, they have to tread lightly
  • If they increased rates too soon, their worry was/is that the dollar would go up too fast vs. the US
  • This then would put added pressure on our exports + job market – also part of their mandate
  • They’re likely to start raising rate this March (ahead of their April promise by a month)
  • Why? Because that’s also likely when the Fed will make their increase announcements – and actually increase this time
  • Once this happens, there will actually be a surge in demand as Buyers try to lock in lower rates
  • After this, if the BoC goes slow and steady, it’s unlikely you’ll see a massive drop (i.e. 25%)
  • Instead, you may see a bit of flatlining, perhaps some stagnation
  • In addition, every year we see the same trend, practically ZERO inventory to start in Jan
  • But as we progress into Feb/Mar and certainly Apr/May, more and more homes start to pop up, helping balance the scales a bit
  • And even if you see a bigger drop, let’s assume 10%, you have to consider the fact that it’s going up right now, so if a 1.5M home goes up to 1.6M and drops 10%, it’s now valued at 1.440M – or 60K less than the 1.5M you can purchase it for today
  • Is the risk worth the reward? Nobody has a crystal ball
  • You can run the scenarios backwards and forwards – you can make arguments on both sides

But here’s the bottom line

  • If you’re trading an asset for an asset (i.e. you’re selling your home, and buying another) – ideally you should sell & buy in the same market) – so go for it if it makes sense to you and you have subjective reasons as to why you’re making the move
  • If you’re a first timer, waiting could save you money, absolutely, anything is possible
  • But, if the market doesn’t correct, or does, but not by what you expected, coupled with inflation at 4.8%+, your monies for your down payment won’t go as far and your purchasing power depreciates
  • Remember, many Canadians are on variable rates, and many variable mortgages are sitting at below 1% (0.85%)
  • This means that even if the BoC increase rates, they’d have to do so 4-6 times to catch up to what banks offer as fixed rates today
  • The reason this is important is that much of this has been considered by the banks (and hopefully by the Buyers) when these mortgages were given/taken
  • So even with the rate increases – we don’t see a 25% drop Hope this helps! As always, we’re happy to answer any questions 🙂

Want to know more? you can watch the full Press Conference right here 🙂 And don’t forget to pin this page with all the scheduled dates for the interest rate announcements for 2022!

Hope this helps! As always, we’re happy to answer any questions 🙂

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