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Inflation, Interest Rates and the Housing Market of 2023: What to Expect?

Posted by Editor on March 7, 2023

What is expected to happen with interest rates in 2023/2024

Comparison of 2023 inflation and the Canadian real estate market to the 1970s and 1980s.

The Canadian economic climate of today may be of interest to those over 55. The housing market today may feel very similar to when you purchased your first home in the 1980s, when interest rates were surging. The primary overnight lending rate has increased eight times in the last 12 months as a result of the ongoing pandemic inflation, and it currently stands at 4.5 percent. When the Bank of Canada makes its next formal announcement on March 8, rates may even increase once more.

We recognize your apprehension. Listen to us though. While the scene of today shares some eerie similarities with that of the 1970s and 1980s, it also differs significantly from those eras.

In a report released in April 2022, James Orlando, CFA, Director Senior Economist with TD Bank, claimed that the 1980s’ high interest rates were caused by the failure to address inflation on time. Today, the Central Bank’s approach to combating inflation has changed, and good news is emerging for our economy’s employment situation.

We don’t have a crystal ball, but we’re willing to be optimistic that the economy in 2024 will be significantly better than it is today.

Here is how the economy has fared historically and what Canadian economic experts believe is actually taking place. This is how we hope to assist you in making wise choices about real estate investment for a prosperous future.

inflation, intrests and candian real estate

What led to widespread inflation in the 1970s?

In his April 2022 report, Canadian Inflation: A New Vintage, Orlando discusses the two main reasons why inflation in Canada exploded during the 1970s and 1980s. Weather problems and the Vietnam War raised food and energy costs significantly in the 1970s and 1980s. In 1973, farmers were so negatively impacted by the weather that there was a global food shortage and a sharp 18% increase in food prices. In addition to historically low fishmeal production, lower poultry production in the US, and meat shortages in Western Europe, the former Soviet Union, and Australia, droughts in several parts of the world also resulted in lower-than-average grain production in China and Australia.


In addition, the 1980 Iran-Iraq War and the 1979 Iranian Revolution both contributed to a doubling of oil prices. The cost of gas increased by 45.5% in Canada in 1981. Mortgage interest payments increased as a result 

of the Bank of Canada’s increase in interest rates to 21%. The Canadian economy experienced a recession, which was not unexpected.

What’s happening in Canada’s economy today?

Many people seem to believe that this apocalyptic scenario could occur right now. According to Orlando, nearly 80% of Canada’s current inflation can be attributed to rising food, gas, and housing prices. This has led to a similar situation.

The annual average Consumer Price Index (CPI), according to Statistics Canada, reached a 40-year high in 2022, increasing by 6 point 8 percent. Since 1982, the nation had not experienced a growth this size. So, yes, it is possible that something significant is about to happen. Before we reach the inflation peak of 12 point 9 percent from 1981, we still have a long way to go.

Toni Gravelle, the deputy governor of the Bank of Canada, claims that it is “unjustified” to draw comparisons between current inflation and that experienced in Canada during the 1970s.

When we look back that far in time, there are a lot of global differences, as TD Chief Economist Beata Caranci has noted. The two eras are difficult to compare. Despite this, it’s hard to resist doing it. A careful examination of the state of the Canadian economy at the moment will also reveal notable differences that have important advantages. Actually, Canada’s inflation rate is starting to decline.

In fact, inflation slowed to 6 point 3 percent in December 2022. This was brought about by a drop in the price of gasoline, according to Statistics Canada. Currently, the national average gas price is only marginally higher than it was a year ago, just before Russia invaded Ukraine.

Employment is increasing

The employment rate is also growing. Surprisingly, according to Stats Can, the nation added 104,000 more jobs in December 2022.

It was a huge surprise, according to Royce Mendes, managing director and head of macro strategy at Desjardins, who spoke to CBC News. Mendes claimed that the number of jobs added exceeded expectations by a factor of over 20. The new number far exceeded economists’ initial predictions of 5,000 jobs added. Since there were more people working full-time jobs, the unemployment rate decreased to 5.0 percent as a result.

What is anticipated to occur in terms of interest rates in 2023–2024.

The Central Bank approaches inflation differently nowadays.

A significant distinction that economists draw between the 1970s and 1980s and the present is the Central Bank’s current strategy for containing inflation. In the 1970s, inflation control was not seen as the Bank of Canada’s responsibility, according to Stephen Williamson, a Western University economics professor who spoke with the Canadian Press. The situation is now different.

According to Williamson, central banks did not yet have well-developed mandates for containing inflation during a significant portion of the 20th century. The money supply was used in an attempt to accomplish this, but it didn’t quite work. Because central banks didn’t want to take the chance of slowing down economic growth by raising interest rates, they approached inflation control in this manner. According to James Orlando of TD, this led to the Bank of Canada being too slow to raise interest rates in the 1970s and 1980s, and by the time they did, it was too late, causing rates to rise as high as they did in 1981.

The Bank of Canada didn’t stop focusing on the money supply to combat inflation until 1982. A framework to control inflation was finally put in place to direct monetary policy in 1991. This adds a layer of protection to fighting inflation today that our economy lacked decades ago. It was agreed upon by the Bank of Canada and the minister of finance.

In his comparison report, Orlando stated, “We think the Bank of Canada has learned from the past.

Since the 1990s, inflation has been successfully targeted by central banks worldwide, and this commitment hasn’t changed, he continued.

Despite the fact that we are unable to predict what the future holds for the Canadian economy, it is arguable that the current state of affairs is significantly different from earlier ones.

What is anticipated to occur in terms of interest rates in 2023–2024.

The rest of the year is expected to see no change in Canada’s interest rates after they may increase in March 2023. According to a long-term outlook, rates will be reduced to 3 point 75 percent by the end of the fourth quarter of 2023. By the end of 2024, we may even drop to 2.5%, but this is still uncertain. Food and energy prices are rising due to global conditions, but inflation is not anticipated to reach those levels or last as long as it did in the 1970s and 1980s.

As millions of immigrants are welcomed to Canada over the coming decades, there will continue to be a high demand for new housing.

Now is the best time to make a real estate investment. Our team at GTA-Homes is dedicated to giving our customers the best knowledge possible about the market for condos under construction. In addition to assisting you in building housing for upcoming generations in Canada, we want to assist you in developing lucrative income-generating opportunities. Contact us right away to begin your investment career and take part in this exciting change.

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