Will the housing market heat up again if the Bank of Canada continues to cut interest rates?
Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, stated that as home sales begin to surge, the Bank of Canada is closely monitoring Canada's housing market, but interest rate cuts will continue as long as the economy develops as expected.
Rogers said in an interview with The Star on Wednesday that the central bank is not yet ready to announce victory in fighting inflation, but confidence in the economy moving in the right direction is gradually increasing.
The challenge now is how to cut interest rates without causing housing prices to soar again.
She stated that there is still a risk of over expectations again, which could put pressure on the housing market, and "we will closely monitor" it.
On October 23rd, the Bank of Canada lowered its key overnight interest rate by 50 basis points, which is twice as much as the previous three rate cuts, to 3.75%.
The summary of the central bank board's discussion released on Tuesday showed that due to the unexpected inflation rate of 1.6% in September, there was a "strong consensus" to adopt a larger interest rate cut in October instead of 25 basis points.
Image source: Bank of Canada
Rogers stated that this is due to the central bank's increased confidence in economic recovery and growth potential.
However, real estate experts warn that similar measures in the future may reignite the market as homebuyers appear to be preparing to enter the market. Meanwhile, millions of borrowers will renew their loans at higher interest rates over the next two years, which could trigger a wave of home sales.
Rogers believes that homeowners do not necessarily need to make greater adjustments to their spending and savings patterns. She said, "Some mortgage holders are saving to cope with upcoming loan renewals, and they will repay, while others are adjusting their spending patterns to make room in their budgets to cope with repayment changes
Rogers described the pressure of mortgage renewals as a "tail risk" to the economy in his speech at the Canadian Economic Club on Wednesday, and the central bank is still closely monitoring how Canadians will respond to this change.
She said that the central bank hopes to communicate as clearly as possible with Canadians while avoiding giving "false certainty".
We are now making it clear to homeowners that as long as the economy continues to develop as expected, we expect interest rates to decrease
Regarding the previous interest rate hike strategy, she said, "We don't think we have done everything perfectly in every aspect." She added that the central bank is reviewing its response measures to the epidemic and will release an evaluation report early next year.
When asked how to evaluate the performance of the central bank, she said, "I don't think we are ready to rate ourselves. We have controlled the inflation rate within the target range, but price stability is a state, not an endpoint... It will take some time until we and Canadians feel confident that we have returned to stable price levels and no longer worry about it. We are not done yet
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https://www.thestar.com/business/bank-of-canada-keeping-a-wary-eye-on-housing-market-but-rate-cuts-will-likely/article_02f9549c-9c76-11ef-8d6d-c332c500d3ff.html