Interest rate cut may send housing market further ‘off the charts’
Odds have grown dramatically in recent weeks the country’s central bank will again slash its key, trend-setting interest rate when it makes its latest policy announcement a week from today.
There is “the very real possibility that the Bank of Canada will pull the trigger,” BMO chief economist Doug Porter said in a new note on Wednesday. Experts suggest the chances are 50-50, barring a “miraculous” jobs report on Friday, Porter said.
Off the charts
Another rate cut, however, would be throwing fuel on an inferno, he and others warn.
“A further rate reduction risks inflaming the already-raging inferno under way in the housing market,” Porter said. “June home sales figures for Toronto and Vancouver were quite simply off the charts.”
“Our estimate is that sales in the two cities combined hit an all-time high on a seasonally adjusted basis in the month. In fact, even with a moderate decline in Alberta, it’s quite possible sales across the country hit a record high,” Porter said.
The central bank’s surprise rate cut in January of a quarter of a percentage point (to 0.75 per cent) is already viewed as a chief catalyst for the renewed uptick in home-loan lending, with buyers jumping in to lock in at historically rock-bottom rates.
A cut Wednesday will encourage even more borrowing and deepen the record debt loads home owners and borrowers have accumulated – something the Bank of Canada itself has warned is the central domestic risk to the economy.
BMO’s Porter and other experts will be looking to Bank of Canada Governor Stephen Poloz’s comments next week for a sense of where he stands on the housing market, where fears of a bubble persist in big centres.
“Mr. Poloz dismissed housing strength and the (related) renewed rise in household borrowing as a ‘side effect’ just last week,” Porter said. “However, we’ll have to see if he’s not getting a bit more concerned about this relentless strength.”
WATCH: Home prices are already so high in some cities, first time buyers have little hope. Mike Drolet reports.
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