A BMO economist is doubling down on his previous suggestion that the raging Russia-Ukraine war will have a negative effect on real estate.

“Will the war chill Canada's overheated housing market?” Sal Guatieri asked.

The senior economist and director at BMO Capital Markets answered his own question, with a bit of qualification.

“It should, so long as it doesn't derail the Bank of Canada from normalizing policy,” Guatieri wrote in a BMO Economics post online.

Guatieri was referring to the series of anticipated interest rate hikes by the Bank of Canada this year and into 2023.

The first of these increases happened on March 2, with a 0.25 percent increase, which brought the central bank’s interest-setting rate to 0.5 percent.

Now the question is whether a cooling down of the Canadian housing market would be a good thing.

“A cool-down of current feverish conditions would be welcomed,” Guatieri stated in his March 15 post.

He noted that benchmark prices “posted record gains on both a yearly (29.2%) and monthly (3.5%) basis in February”.

“Even though prices are far detached from family income in many areas, bidding wars remain relentless, with the country posting the second-best February sales on record,” Guatieri stated.

Also on March 15, the Canadian Real Estate Association reported that the average price of a home in the country posted an annual increase of 20.6 percent in February 2022.

Meanwhile, the B.C. Real Estate Association noted on March 14 that the average price of a home in the province posted an annual increase of 24.9 percent in February.

Russian President Vladimir Putin announced on February 24 that his country is launching a “special military operation” in Ukraine.

The Straight previously reported about a March 4 post by BMO’s Guatieri, which noted that the “war is unlikely to echo previous crises that only ended up juicing the market”.

The said earlier paper carried the title “Canadian Housing: Caught in the Crossfire”.

“As things stand, the conflict is expected to raise more concern about inflation than growth, heightening risks to the rate outlook,” Guatieri noted.

Again, the rate refers to interest rates in Canada.

To explain, higher interest rates translate to more expensive mortgages, which means it will be harder for homebuyers to finance a residential property.

Meanwhile, raising interest rates is a monetary measure that reins in inflation.

Guatieri’s March 15 paper is titled “Out of the Pandemic and Into the Fire”.

This latest post takes a broad look at the overall economic effects of the Russia-Ukraine war.

The part about how the conflict will impact the Canadian housing market is included in the analysis.

In particular, Guatieri noted that higher interest rates will “will eventually take a toll” on real estate.

This will bear “notably on investors who are now the fastest rising share of buyers”.

“But the main threat is that prices could keep climbing at an unsustainable pace, before higher rates have a chance to pull the market gently down to earth,” Guatieri wrote.

He continued, “Solid job growth and a rebound in immigration will provide support, but demand is likely to weaken and price growth simmer down.”

While prospects may not look rosy to the traditional hot markets of B.C. and Ontario, the opposite may be expected in other provinces.

“The energy and resource producing provinces of Alberta, Saskatchewan, and Newfoundland and Labrador should outperform the national market,” Guatieri stated.

The BMO economist explained,  “Not only have they mostly avoided the explosion in house prices in the past two years, and thus remain affordable, they stand to benefit from soaring prices of oil, wheat and potash.”