Housing prices in Canada deteriorate in conjunction with interest rate cuts

zahraa ahmed - | World News

The Bank of Canada is set to announce a reduction in interest rates on Wednesday, several economists in Canada have confirmed, but some economists have warned that the central bank may have other ideas when it comes to timing the first cut.

For his part, Governor of the Bank of Canada, Tiff Macklem, confirmed that the central bank’s last interest rate in April and that the initial cut at the next meeting in June will be “within the range of possibilities,” and explained that this depends on whether inflation and other economic indicators continue to decline according to... For Bank of Canada forecasts.

Canadians keep spending money

An Ipsos poll conducted last month showed that Canadians are continuing to spend money on vacation this summer despite feeling financially strapped.

The Bank of Canada may be dismayed by what happened in the US

Orlando noted that this indicates Canadian consumer resilience despite rising interest rates, and says the Bank of Canada may be dismayed by what happened in the United States earlier this year, when a rise in spending on services ignited inflation that was, until... That moment, in a calm state.

The Bank of Canada has the option of holding interest rates for a longer period

Orlando explained that with the economy not experiencing a technical recession and consumers continuing to spend, the Bank of Canada has the option of holding interest rates for a little longer before it feels any urgency to reduce them, and that doing so could give the central bank confidence that the progress it has made on inflation so far is... It will remain untouched, avoiding the chance of a return to tightening monetary policy.

Reducing interest rates

Canadians looking forward to a strong rebound in the housing market when the Bank of Canada starts cutting interest rates may be disappointed, economists say.

A slowing economy, still-high borrowing costs and affordability challenges will limit gains, the Federation of Desjardins-du-Québec Funds says in its latest housing forecast.

Housing market deterioration

“We continue to assume that the recovery will not begin in earnest until the worst of the labor market weakness is overcome and further interest rate cuts are achieved,” economists Mark Desormeaux, Carrie Norman and Helen Begin said.

The Bank of Canada will announce its decision on interest rates tomorrow, and while the market and many economists' expectations are leaning toward the downside, the outcome is far from certain.

Low interest rates in Canada

Robert Kavcic, chief economist at the Bank of Montreal, expects the cut to take place, but warns that the market reaction "may be disappointing."

Variable-rate mortgages accounted for less than 10 percent of new lending last year, as homebuyers chose lower rates for 5-year or shorter-term fixed mortgages, he said.

Reducing variable interest rates by 25 points

“So what would cutting variable interest rates by 25 basis points do given the shape of the yield curve? For actual affordability and ability to qualify for a mortgage, it wouldn't do much of anything,” Kavcic said.

"In order to significantly stimulate housing, we will need a comprehensive rethink of the interest rate path through the bond market, for both Canada and the United States. That has not happened yet."

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zahraa ahmed
zahraa ahmed
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