Bank of Canada Raises Policy Rate to 2.5% as Toronto Housing Market Cools
The Bank of Canada hiked its policy rate by 25 basis points to 2.5 per cent, its first increase in over three years, citing inflation concerns tied to high energy prices. The move comes as Toronto home sales and benchmark prices decline, with real estate professionals divided on how higher borrowing costs will affect buyers and sellers.
The Bank of Canada increased its policy rate by 25 basis points to 2.5 per cent on Wednesday, marking the central bank's first interest rate hike in more than three years. The decision was driven by concerns that persistently high energy prices could fuel broader inflation.
The rate increase arrives amid a cooling housing market. Canadian home sales fell 2.3 per cent month over month in September and were down 7.7 per cent from a year earlier. In Toronto, home sales declined nine per cent year over year, while the composite benchmark home price dropped 4.7 per cent.
Phil Soper, president and chief executive of Royal LePage, stated that prolonged weakness in the housing sector is weighing on economic growth and that higher borrowing costs will deepen this challenge.
Real estate professionals are divided on how the rate hike will shape market behaviour in the coming months. Marco Pedri, a broker with Shoreline Realty Corp., suggested that prospective buyers had anticipated the increase, making an immediate shift in demand unlikely, but warned of a "long, slow winter" for sellers.
Phil Edwards, a mortgage broker with Cannect, noted that higher borrowing costs could force purchasers to reduce budgets or delay buying. He observed clients seeking to lock in rates ahead of potential increases.
In contrast, Davelle Morrison, an agent with Bosley Real Estate, suggested the rate increase could encourage some buyers to act before borrowing costs climb further.
Sammy Kohn, a realtor with HouseSigma, argued that a 0.25 per cent increase alone is unlikely to cause a broad price decline, emphasizing that local supply, employment, and buyer demand remain key factors.