Canadian Interest Rates Expected to Remain Low as Housing Prices Rise

Posted on 25th September 2014

Canada’s housing market is bucking the global trend. In an economic climate in which many real estate markets are struggling, the Canadian housing market is strong. And it is expected to remain resilient.

For example, before 2006, Canadian and U.S. house prices tracked each other fairly closely for at least 25 years. All that changed though when the U.S. housing bubble burst in 2007. Housing prices in Canada and the U.S. have been moving in opposite directions for much of the past six years.

More broadly, Canadian home prices are up 145% since 2000, compared to 71% in the United States. Housing prices in the U.S. have risen almost 25% since bottoming in 2012, but still need to climb an additional 20% before they even reach their pre-recession levels. (Source: House Price Index, “Teranet – National Bank National Composite House Price Index,”, last accessed September 24, 2014.)

The Canadian housing market, on the other hand, is up just 12% over the same time period. But it’s important to remember that the Canadian housing market didn’t go through any kind of correction. According to the most recent data, the housing gap between Canada and the U.S. is more than 60%. (Source: Tencer, D., The Huffington Post Canada, “Canadian House Prices 62 Per Cent Higher Than U.S. Prices: BMO,” April 23, 2014;

Despite mortgage rates being kept low, Canadian home sales continue to close in on all-time highs. Sales of existing homes have climbed for seven straight months. In August, the national average for an existing home was approximately $400,000, 5.3% higher than a year ago. August existing home sales are at their highest levels since January 2010 and just 6.0% below their record peak in February 2007. (Source: CREA “Canadian home sales climb higher in August,” September 15, 2014;

The mortgage experts at understand that the data are a little misleading; at least for most of the country. The national average price is skewed upward by activity in the Greater Toronto and Greater Vancouver Areas. If you take these two markets out of the equation, the average price for an existing home in Canada is closer to a more manageable $325,000, while the year-over-year increase drops to 3.9%.

With Canadian housing prices trending steadily higher, many first-time home buyers are concerned they won’t be able to afford to get onto the property ladder. This is compounded by the fear that the Bank of Canada will raise interest rates in the near term.

The Bank of Canada has held its key interest rate at 1.0% since September 2010 and said it won’t raise rates until the economy improves. With the economy on stable footing, many are wondering when interest rates will rise and how high.

Because the Canadian and American economies are so intertwined, most economists don’t think Canada will raise its interest rates until the U.S. does. And with the U.S. economy still fragile, it doesn’t look like the U.S. will raise its key interest rates until late 2015.

Even then, the U.S. lending rate is significantly lower than the one set by the Bank of Canada, so if the U.S. does raise it in late 2015, this doesn’t mean interest rates will move higher here. In fact, because of the gap, interest rates in Canada could remain historically low until 2016.

Going forward, according to a senior deputy at the Bank of Canada, the country’s post-recession neutral interest rate is likely going to be just 3.0% to 4.0%. That’s 1.5% below the historic norm.

Lower interest rates for the near future make for welcome news to first-time home buyers . If you’re looking to buy your dream home this autumn, now is a great time to contact a licensed, independent mortgage agent at

Your agent can help you get pre-approved for a mortgage in 24 hours or less and help you find the best mortgage and rates to suit your personal needs.

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