OTTAWA – TD Bank says the Bank of Canada’s latest decision to cut its key interest rate will not be a “game changer” for the country’s housing market.
Some have raised concerns about what the interest rate cut by the central bank could mean for an already hot housing market.
TD said Friday the central bank’s decision resulted in a small move lower for variable rate mortgages, but added the posted five-year fixed rate is the most important factor for the housing market.
“It is the rate that borrowers must be income tested against to qualify for a mortgage, and it most closely follows the five-year government bond yield,” said the report.
MORE: Another rate cut risks sending housing market further ‘off the charts’
With the yield on five-year government bonds sitting near record lows, TD said there is little room to drop further.
“In fact, we think global forces will pull Canadian bond yields slightly higher as the year rolls forward, as rate hikes in the U.S. draw closer and global conditions improve,” TD said.
The bank upgraded its housing market forecast on Friday, but it attributed the improvement to the large decline in mortgage rates over the first part of the year.
In the updated forecast, TD expects existing home sales to grow 5.1 per cent this year and prices to rise 7.1 per cent. Housing starts are expected to total 187,400.
The prediction compared with a February forecast by the bank that saw a 2.0 per cent drop in existing home sales, prices rising 1.5 per cent and housing starts totalling 177,000.
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