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Will High Interest Rates Decrease Real Estate Activity in the Country?

Many current events are taking place that affects the Canadian real estate market. With the Bank of Canada holding the highest interest rate policy amongst developed nations and unemployment rate spiking in the month of November, will this decrease real estate activity in the country?

Latest on Canadian Real Estate Market Trends by Steve Saretsky

Happy Monday Morning!

The Bank of Canada has opted to keep interest rates firmly in place at 1.75%, despite their counterparts aggressively easing monetary policy across the globe. While the Bank of Canada now maintains the highest interest rate policy amongst developed nations, real rates remain negative, ultimately below the rate of inflation. While there remains pressure to ease, the Bank rightfully remains concerned about stoking household credit and inflating housing prices further.

Deputy Governor at the BoC Timothy Lane, made their views public,  lamenting this past week, “There is no reason for the Bank of Canada to move in step with the Fed. On the contrary, the experience of the past decade shows that Canada and the United States have followed different roads, reflecting differences in our economic conditions.”

However, anyone following interest rates this past decade can see Canada and the US have followed each other in a near synchronized harmony.

Ironically, just a day after Mr. Lane’s comments, the Canadian labour force lost 71,000 jobs in November. It was the biggest drop in employment since 2009, pushing the unemployment rate upwards to 5.9 per cent, from 5.5 per cent in October. Whether this was just a one off giant miss or a precursor to get the BoC off their hands remains to be seen.

One things for sure, it hasn’t kept Canadians from indulging in the housing market. Residential mortgage credit growth accelerated again in November, now growing at a faster pace than before the B-20 mortgage stress test. Vancouver home sales jumped 55% in November, while Toronto home prices continued accelerating, officially growing at their fast annual pace since 2017.

The conflicting news on the labour and housing fronts place the central bank in a tough spot. And given the likelihood of further monetary madness in the coming years, a wise Stephen Poloz has decided he’d rather not be around to partake in it. This past week, the current Bank Governor announced he will step down following the expiry of his 7 year term in June of 2020.
“My time as Governor has been the most fulfilling of my long career. During my term, the Bank has created the conditions for steady economic growth, low unemployment, and inflation close to target through very challenging times.”

Au revoir, Mr. Poloz.

Three Things I’m Watching:

1. Residential Mortgage Credit growth on a 3 month annualized basis is growing at 5.74% as of the end of October. That’s the quickest pace of growth since July 2017.

2. Per Desjardins Capital Markets, The Canadian job market was also long overdue for a correction, given how job growth had persistently diverged from GDP.
Canada Employment Growth GDP

3. Toronto Real Estate Board reported the composite benchmark hit $815,800 in November, up 6.83% from last year. Fastest pace of growth since 2017.
Greater Toronto Benchmark Price Change

 

Steve Saretsky profile picture

About Steve Saretsky

Steve Saretsky is a Vancouver Residential Realtor and author behind one of Vancouver’s most popular Real Estate Blogs Vancity Condo Guide. Steve is widely considered a thought leader in the industry with regular appearances on BNN, CBC, CKNW, CTV and a contributor to BC Business Magazine.

For more expert insights on the real estate market and trends, visit Saretsky’s website at www.stevesaretsky.com

Steve Saretsky
[email protected]
604-809-8149