/Posthaste: Why Bank of Canada’s resistance to a rate cut wont tame our resurgent housing market

Posthaste: Why Bank of Canada’s resistance to a rate cut wont tame our resurgent housing market

Good Morning!

Toronto’s home prices accelerated at the fastest annual pace since 2017 in November, as surging demand falling supply inflates prices.

Benchmark prices on homes sold in the country’s largest city edged up 0.6 per cent in the month from October, taking the yearly increase to 6.8 per cent, according to the Toronto Real Estate Board this morning. The number of deals also rose 14% compared to the same period last year.

Vancouver, Canada’s most expensive property market, also saw a 55.3 per cent jump in sales across the Greater Vancouver Area in November compared to the same period last year. Benchmark prices also eked out gains of 0.3 per cent in November vs October, suggesting the price declines of the past few months may be over.

“An increasing number of home buyers impacted by demand-side policies over the past three years, including the 2017 Ontario Fair Housing Plan and the OSFI mortgage stress test, have moved back into the market for ownership housing,” said Michael Collins, president of TREB.

The figures are yet another reason for Bank of Canada to pause and not pull the trigger on interest rates today.

“The BoC is universally expected to hold policy rates steady at 1.75% while remaining cautious on the outlook,” according to Bank of Montreal. “The economy has performed exactly as policymakers anticipated, core CPI continues to trend around 2%, Q3 GDP was bang on the 1.3% projection, while Q4 is tracking in the 1%-to-1.5% range.”

While the Bank of Canada is worried about inflaming housing and mortgage markets like it did when it eased in 2015, Scotiabank questions whether cutting the policy rate would further inflame housing.

“Mortgage and housing markets recovered in many areas this year in part because a globally correlated bond rally drove fixed mortgage rates lower including the key five year fixed rate,” Scotiabank analyst Derek Holt said in a note late last month.

“Cutting the variable rate once or twice is unlikely to do more than to remove a front-end kink in the rates curve rather than drive a flood of variable rate activity,” Holt wrote. “The stimulus would more likely flow to companies’ working capital financing requirements and exporters through the currency than housing markets.”

As TREB argues, what the market really needs flexible housing market policies that will help sustain balanced market conditions over the long term, like the one Toronto proposed yesterday.

“In 2020, policy makers need to translate their acknowledgment of supply issues into concrete solutions to bring a greater array of ownership and rental housing online,” said TREB CEO, John DiMichele.

Here’s what you need to know this morning:

  • Prime Minister Justin Trudeau attends the North Atlantic Treaty Organization (NATO) Leaders Meeting in London
  • Bank of Canada to make an interest rate announcement at 10 a.m. ET in Ottawa
  • Crown-Indigenous Relations Minister Carolyn Bennett, Heritage Minister Steven Guilbeault and Justice Minister David Lametti to address the Assembly of First Nations Special Chiefs Assembly, in Ottawa
  • Bombardier to hold a press conference on the future of its Global aircraft series
  • Canadian Natural Resources Ltd. unveils plans for 2020 at its investor day in Toronto
  • Notable Earnings: Royal Bank of Canada, Laurentian Bank, Dollarama Inc., National Bank of Canada

Canadians owed $1.77 for every dollar of after-tax income earned in the second quarter of 2019. Indebtedness is higher than one year ago, increasing the vulnerability of Canadians to unexpected difficulties in meeting their financial obligations, according to the Canada Mortgage Housing Corporation’s latest report.

However, the trend since the first quarter of 2019 has been a decline of indebtedness. The average outstanding balance of newly originated mortgages declined in the most recent data, reversing a trend of growth.

“Mortgage holders expanded credit card balances at a faster rate than non-mortgage holders, while LOC (line of credit) growth ticked up above zero for non-mortgage holders in the second quarter of 2019 after shrinking or holding constant for the past two years,” the CMHC said in its report.


— Send your news, comments and stories to Yadullah Hussain at [email protected] or  @yad_Fpenergy

With files from The Canadian Press, Thomson Reuters and Bloomberg


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