News coming out of StatsCanada this week – Canada's inflation rate slowed to 2.9% (vs. 3.3% as expected) in January, largely driven by a decrease in gasoline prices (-4% YoY). Despite the good news, mortgage interest costs continue to take the #1 place as the key driver for inflation (+27.4% YoY); rent growth taking a #2 spot (+7.9% YoY).
Bank of Canada Governor, Tiff Macklem has addressed the high cost of housing in recent meetings, and now recognizes that simply moving interest rates will not fix the housing affordability issue... it's a complicated problem:
1) Raise interest rates, leading to further inflation and renewal issues
2) Cut interest rates, leading to prospective buyers to dive in with higher ability to purchase driving prices up further.
As a reminder, the BoC has raised rates 10 TIMES since March 2022, but has since held rates flat since July 2023. Economist expect the BoC to start cutting rates this summer. This recent inflation report provides some clarity to the market and the BoC on next steps, on trimming rates back.
HOWEVER... Alberta's inflation rate rose to 3.4% in January, largely due to a rise in power prices (removal of Government cap on power prices), and more acutely in Calgary (+4.1% YoY), with the impact of record high rental prices.
With over 180,000 individuals moving to Alberta over the last 12 months, this is putting a lot of pressure on housing costs. That said, there has been a supply response with construction of new housing to help moderate in the medium to long-term.
As the BoC considers figures on a national basis, there may be little reprieve on continued demand on housing in Calgary, particularly when rates get trimmed back, adding more buyers into the mix. If you're thinking of buying, I'd highly recommend coming well-prepared (down payment saved, pre-approved) and understand the state of the market to help set expectations. Happy to have a discussion to see how we can help!