Interest rate hike unlikely in 2015: BMO

Relax, Canada, not only is the real estate market not going to experience a U.S.-style crash, as some pundits continue to predict, but there isn’t even going to be any significant interest rate hike in 2015.This, according to Douglas Porter, chief economist of BMO Financial Group. He suggests the Bank of Canada may raise its influential overnight target rate by a quarter-point, at best. BoC has held the rate at one per cent for four years.BMO itself, in its Home Buying Report released in late October, inadvertently stoked the flames of concern. The report indicates the majority of Canadians currently in the market for a home would be forced to change their buying plans in the event of a two percentage point rise in interest rates. Thirty per cent would be forced to reduce their price range and settle for a less expensive home, while another 13 per cent would be priced out of the market completely.And this, at a time when prices in the three hottest cities – Calgary, Toronto and Vancouver – are rising faster than family income, further straining affordability.Porter assures, however, that a two-point interest rate hike is highly unlikely.“The chances of a two percentage point rise in rates in any year these days is remote, and I would peg it as extremely unlikely in 2015,” Porter told New Home & Condo Guide. “We do believe that at long last rates will begin to creep higher next year, but we are only looking for quarter-point hike by the Bank of Canada.”Continued rapid price gains in Calgary, Toronto and Vancouver will increase those cities’ vulnerability to a shock – whether economic, interest rate or otherwise, BMO says in the report.Porter suggests there may be some price cooling in these markets next year, particularly in Calgary and other cities with ties to the oil and gas industry, since oil prices have fallen notably in recent months.“We would also look for somewhat slower price gains in Toronto and Vancouver, but both of those markets have proven to be amazingly resilient – largely thanks to relentless population inflows to both,” Porter says. “I’m not sure that any other large city could step into the void at the top, and we expect a notably milder national price increase next year.”But if Canadian real estate has demonstrated anything lately, it is its ability to surprise.“The dominant story in recent years has been the consistent surprises to the high side by the Canadian housing market.”Related reading:Calgary is hot, and here's whyCanada's hottest real estate market? You might be surprisedNew home sales and prices continue strong performance