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Housing upturn could delay a shift by Bank of Canada to cut rates. What to know

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Signs of recovery in Canada’s housing market after a year-long slump, just as higher borrowing costs are expected to slow much of the rest of the economy, could raise inflation and delay a shift by the central bank to interest rate cuts, analysts said.

The housing market’s upturn comes after the Bank of Canada paused its interest rate hiking campaign last month, leaving the benchmark rate at a 15-year high of 4.50 per cent since January.

In addition, analysts say higher borrowing costs have so far caused less financial stress for homebuyers than they had expected, so the market has not had to accommodate a flood of supply from forced sellers.

The BoC is counting on slower economic growth to return inflation to its two per cent target. A rebound in the housing market could boost activity and contribute directly to price pressures. “The Bank of Canada at the end of the day is probably not going to be too thrilled if the housing market really starts to ramp up,” said Robert Kavcic, a senior economist at BMO Capital Markets. “From a shelter cost perspective, you are going to start to see more upward push on inflation in the second half of this year.” The cost of shelter has the highest weighting in Canada’s consumer price index, accounting for 30 per cent.

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