Is The Bank of Canada Set to Make an Interest Rate Decision?

Recent pressure on Governor Poloz to make a decision regarding interest rate. Despite the effects of the negative interest rate on households, national real estate activities are still above ten year average. However, inventory on the real estate market has been at its lowest in December 2019. Read more as Steve Saretsky speaks on the current state of the national real estate market.

Latest on Canadian Real Estate Market Trends by Steve Saretsky

While market odds expect the central bank to remain on hold, the outlook is anything but set in stone. The Bank of Canada remains one of the only major central banks that hasn’t aggressively eased monetary policy over the past year, and with economic data beginning to sour, the pressure is certainly mounting on Governor Poloz. On one hand, the economy is slowing, on the other, all signs point to further inflation in the housing market.

National sales were up 22.7% year-over-year in December, a big jump from a disastrous 2018. The reality is, home sales continue to hover above the ten year averages, and in most major markets, prices continue to rise. This pushed the national home price index higher once again, up 3.5% from last year and clearly trending higher.

However, the real story here is what appears to be the unintended consequences of prolonged real negative interest rates. Canadians are hoarding houses, opting not to sell. In a world where safe assets yield next to nothing, think savings accounts, GIC’s, bonds, Canadians are parking their money in real estate.

On a national basis, December saw the second fewest new listings in the past decade, leaving the months of inventory on the market at its lowest level since 2007. On a sales to new listings basis, market conditions haven’t been this tight since 2004.

Think about it, Canadian housing is on a near thirty year bull market, entrenching a self-fulfilling belief that prices always go up, so why sell? Meanwhile, any sudden correction in the market is being met with ample liquidity from global central banks. Under normal circumstances, when asset prices get too hot, central banks raise interest rates and put an end to the party.

Instead, we are most likely facing a scenario where the Bank of Canada follows suit and cuts rates in 2020, chasing their official mandate of 2% inflation, despite the obvious repercussions.

More on this Wednesday.

Three Things I’m Watching:

1. The national sales to new listings ratio pushed higher, indicating market conditions haven’t been this tight since 2004.

2. National home prices ticked higher in December, growing 3.5% year-over-year.

3. On a more encouraging note, at least consumers have slowed the rate of borrowing against their homes. Domestic HELOC growth in Canada is plunging.