House prices edged up in March and the sharp rise in the sales-to-new listing ratio suggests there are further gains to come. As the improvement has been driven mainly by a collapse in new listings, while buying power is still constrained by higher mortgage rates, we do not expect prices to increase by anywhere near as much as the sales-to-new listing might suggest. But we have now revised up our house price forecasts, which imply house prices will end the year close to their current level. While the stabilisation of the housing market is good news for the near-term economic outlook, it nevertheless makes the Bank of Canada’s job harder. House prices feed through directly into the CPI, so there will be less downward pressure on inflation from housing than we previously expected. Empirical research also shows that consumers’ inflation expectations tend to be heavily influenced by housing costs, raising the risk that consumers’ short-run inflation expectations will continue to decline only gradually from their still elevated level. All this could prompt the Bank to keep the policy rate unchanged for longer than we expect, with overnight index swaps now pointing to the first interest rate cut in 2024, rather than toward the end of this year as we currently assume.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services