Canadian homebuyers shouldn’t expect interest rates to rise until late 2021!

We already know Canadian mortgage rates are expected to stay low through 2020, barring any surprise economic shocks. After leaving it steady through 2019, the Bank of Canada has already signalled that a hike to its mortgage-market influencing overnight rate is unlikely in the next 12 months as well.

But what about the next year? Could the central bank, whose policies have a huge impact on mortgage lending, really hold rates through 2021 as well?

Global recession talk has simmered down toward the end of this year, with the Conservatives’ recent decisive election victory in the UK reducing some of the fog around the Brexit timeline while international trade conflicts have also moved closer toward resolution.

The overall reduction in economic uncertainty means monetary policymakers at the Bank of Canada are unlikely to cut interest rates anytime soon, even as the Canadian economy has been putting less than stellar growth numbers on the board recently. Pile on the fact that a year of lower mortgage rates has led to accelerated home price growth in markets across the country; any further rate cuts might add too much fuel to that fire.

“Signs of an imminent acceleration in house price inflation suggests that the Bank of Canada will remain on the side lines despite the further slowdown in GDP growth in the final quarter of 2019,” wrote Capital Economics’ Stephen Brown in a research note published this week.

However, Brown believes better economic performance in 2021 will mean the Bank of Canada will resume eyeing rate hikes towards the end of that year.

“The prospect of above-potential GDP growth in 2021 will put interest rate hikes back on the table by the end of that year,” he wrote.

So what does this mean for the country’s housing market? While lenders may hike and cut mortgage rates over the next two years, it looks unlikely that there will be significant movement in either direction. This means homebuyers will likely see borrowing rates stay relatively low for a reasonably lengthy stretch. With the Liberal Canadian government also exploring new ways to expand their support for first-time homebuyers, it’s looking like 2020 and 2021 will offer plenty of good opportunities to enter the market.

That said, low lending rates and government-support programs will also do plenty to boost home prices in major markets at a time when the supply of homes on the market is already dwindling. It won’t be quite as smooth a ride for many Canadian buyers out there as the low mortgage rate environment might indicate.