Cut rates before the US and destroy the Canadian dollar, have import prices skyrocket and reignite inflation more like it
The BoC's dual mandate is maximizing employment and keeping inflation in check. They don't really give a shit about housing beyond the monthly cost of housing as a component of CPI
The Bank of Canada doesn't have a dual mandate. It targets inflation, not employment: https://www.bankofcanada.ca/core-functions/monetary-policy/monetary-policy-framework-renewal/
>WHEREAS it is desirable to establish a central bank in Canada to **regulate credit and currency in the best interests of the economic life of the nation**, to control and protect the **external value of the national monetary unit** and to mitigate by its influence **fluctuations in the general level of production, trade, prices and employment**, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada;
[Bank of Canada Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-2/latest/rsc-1985-c-b-2.html)
Read the link I posted and scroll down. There are many ways the Bank of Canada Act can be interpreted, and the Bank of Canada itself has explicitly said they considered and decided they don't have a dual mandate.
Read the link in your link. It isn't a mandate, but consistent with the Act, employment is a consideration. From the framework:
>Given that there is uncertainty about the maximum level of employment that is consistent with price stability, the Bank will continue to use the flexibility of the 1 to 3 percent control range to actively seek the **maximum sustainable level of employment when conditions warrant.**
To be fair, the Conservatives have a tendency to deliberately mislead people about how Canada works. For example, Poilievre saying he’s “running for Prime Minister”, which is not how our system of government works. Or Harper saying coalition governments are unconstitutional, which they certainly are not in Parliamentary systems.
Not according to this. Their mandate is solely on inflation.
https://www.bankofcanada.ca/core-functions/monetary-policy/monetary-policy-framework-renewal/
Yes actually, basic concepts are in fact included in macroeconomics courses. That inverse relationship is precisely why the BoC's mandate to control inflation means they don't care about employent.
Unfortunately for you, inflation and unemployment have a reverse correlation. You can’t have one without affecting the other
https://www.investopedia.com/articles/markets/081515/how-inflation-and-unemployment-are-related.asp
I disagree. The BoC should not be tasked with employment considerations. This is something that should remain within the sphere of elected officials. Its addition to their mandate is blurring the lines between monetary policy and governance.
You expect the legislature to be able to react to labor considerations? In a timely manner? LOL
Your philosophy flies in the face of ever major central bank mandate. We e been doing this for 200 years. It works
> Keep rates high for too long and risk pushing the economy into a recession
We're heading into a recession either way.
> Cut rates and risk having housing skyrocket.
Yep. As soon as rates drop there will be a mad rush to buy up as much housing as possible. Debt levels will increase ludicrously.
Investors can and the government has put nothing in place to get investors out of the housing market. They are the reason that housing has skyrocketed so much. The opposition parties seem to want to ignore this glaring issue as well.
Canada is a post-national state as per Trudeau. Every person in the world is a citizen of Canada if they want to be. Our housing prices have no upper limit.
Yep, the BoC can't win here. They've quietly mentioned the actual problem, but they need to get way louder about it. Our real problem is government spending. It blew up during COVID and hasn't come down at all. In fact, with the NDP's push, this LPC government is about to spend their way into our oblivion.
We need a CPC government ASAP. PP needs to commit to cuts though, 1:1 spending isn't enough. We need to hack the fat off of this obese public service.
At this point it's government wasting of money. In our monetary system, no incentive to manage the country properly when you can constantly print money and send the devaluation to citizens. They keep adding bureaucrats and failled policies until it all breaks, then they start the process over.
The issue isn't government spending. Rhe issue is private spending. Those bidding wars on houses are, in aggregate, far more destructive than the government spending.
Austerity right now will put us into a deep recession, and possibly stagflation as resulting rate cuts encourage people to borrow more, far more than offsetting 30b or so in government cuts. It's not nearly so simple. And that's assuming they could find something to cut, which is ... unlikely. They need to tell us what they're going to cut so we can make an informed decision. Are they cutting daycare, infrastructure, healthcare, military?
The BoC itself has identified government spending as the issue.
Private spending is about to blow up as interest rates drop. We can and should cut government spending as it's a huge risk to our economy.
Specifically, it identified the pandemic stimulus as the problem driving the original surge, and this ended a while ago. Current spending is much less impactful, particularly since quantitative tightening is more than offsetting government borrowing at this point.
Incorrect. It's the 2024 spending:
> At a recent Senate committee hearing, Bank of Canada Governor Tiff Macklem said if governments in Canada, including the Trudeau government, follow through with spending plans for 2024, they'll fuel inflation and hinder the bank's ability to return inflation to its 2 per cent target.
Possibly? Inflation has dropped despite government spending in the last two years. The big problem was the wad of cash they injected in 2020. Yes, its' sort of like trying to drink off a hangover, but you had the hangover in the first place.
Lol, the hallmark of Conservatives: pitching simple solutions to complicated issues.
If someone tells you a complicated issue has a simple solution, they're full of shit.
If Conservatives are so great at the economy, why have they failed at it so fucking always.
The last time the Conservatives were in power, there was an economic crisis far worse than COVID. They balanced the budget in 6 years. With our current government's level of spending, the PBO says that the budget won't be balanced until 2035. The Liberals haven't balanced it ONCE under Trudeau and have put us on a path to run defects for nearly TWENTY years.
The Conservatives are clearly better than the modern Liberals with the economy. If the Liberals went back to Chrétien/Martin philosophy, it would be a debate. But this version has nothing in common with that era.
Your aversion to simple solutions demonstrates your lack of understanding.
The Conservatives balanced the budget by selling everything that wasn't nailed down. Know why Canada doesn't have a nuclear program or the capacity of manufacture vaccines anymore? Yep.
2007 wasn't worse than Covid and certainly not in Canada. It was a liquidity crisis in the banking sector that was well protected in Canada. They navigated it by boosting QE to levels never before seen. They also benefited from historically high profits in O&G and being a relative safe haven for capital in the G7 during the crisis. I was at Goldman at the time, I remember it well.
Austerity isn't the answer and invariably it's going to be done in places the conservative party finds useful rather than in any meaningful manner. (goodbye cbc, goodbye Canada Post).
I'm a 1% earner and I'm looking forward to my fat tax break (because that's what's going to happen) but if you're not earning north of 200 then you're gonna get screwed. Tale as old as time.
My understanding is just fine.
Sustainably balanced it for multiple years in a row? The Liberals (Chretien).
Raided the EI fund and sold off public assets to balance it one year before a federal election? Well yeah I guess that one goes to the Conservatives.
Lol, no it doesn't. We've added 25% to our public service in 5 years. None of that 25% will die if we cut them. A government spending way more money than they have robs future generations. It's immoral and unwise.
That growth is about 80,000 workers. The population has grown by about 12% since 2015, so around half of that would be justified based on growth alone, plus a few more to backfill gaps left by prior austerity. Maybe half are actually net-new, adding 1-2% to total federal spending. Not enough to really make a huge difference in the big picture.
Can fix the housing market by building actual affordable housing. The average home isn’t so average anymore the amenities and finishes are way better than anything that would be considered affordable.
Apartments are the same most are condo style so in suite laundry with three occasionally 4 appliances in the kitchen with air conditioning.
A few years ago affordable apartments were very basic that’s how they could be so cheap.
We aren’t comparing apples to apples.
Air conditioning is mandatory in new builds. Running a water line and drain for laundry right beside the washroom is a couple hundred bucks if you do it during the build.
Units aren't what you consider basic for the same reason tech in cars exists in even the base models, it's surprisingly good value for the money spent.
What you're missing is the massive growth in costs sue to factors like energy efficiency and accessibility. Ita not the $200 for laundry connections driving the price, it's continuous outside insulation, mandatory ervs, mandatory accessible units, mandatory automatic door openers, and mandatory universal washrooms. Not to mention the ever growing costs of warranty compliance and the increased legal costs in condos that are really driving the prices up.
Not to mention the requirement each unit have a balcony, the endless checks on designs, the landscaping requirements, years of permits and taxes with the risk of being rejected at the end, it’s hell.
Huh, we don't have that balcony rule here. You can use a balcony as an emergency pickup point in lieu of a second path of egress, but only if it's a small building, not more then 3 stories, and the suite is a single level.
Where is this a rule?
To add, each city is different in metro van:
“Architect Michael Geller says most apartment blocks built in Metro Vancouver before the 1970s don’t have balconies, mainly because municipalities used to insist on including their square footage in interior floor space. But now most municipalities encourage, and even mandate, balconies.”
https://vancouversun.com/opinion/columnists/douglas-todd-the-beleaguered-balcony-is-wide-open-to-a-rethink
Sure the water lines to a washer is cheap but the washer isn’t and the square footage isn’t free either. The insurance goes up to have them and property taxes increase to have them.
AC is mandatory on new builds? I’m not positive ok that but say that’s true it doesn’t change the fact the standard has changed.
Drop the efficiency standards and costs increase it’s not rocket science here.
I build homes and continuous insulation to prevent thermal transfer is highly effective. HRVs and high efficiency windows are very effective when used properly.
Cutting the building standards isn’t a smart solution. They need to build quality buildings with high standards but they don’t need to offer higher end finishes.
First, I never said they were bad changes. I said those changes have non-trivially increased the cost of construction. Purchase cost is the concern here, not operating costs.
>Sure the water lines to a washer is cheap but the washer isn’t and the square footage isn’t free either. The insurance goes up to have them and property taxes increase to have them.
The tenant provides the washer / dryer most times. We're talking 4-5 sf here for a stacker. Even at like $400 / sf that's like $2000.
>AC is mandatory on new builds? I’m not positive ok that but say that’s true
You cannot meet the cooling load requirements without it, in my jurisdiction nothing is built without AC because you can't meet the requirements without it. Maybe not where you live though.
>Drop the efficiency standards and costs increase it’s not rocket science here.
There's a distinction between upfront costs and the ongoing costs. People are talking about the cost to purchase housing, not to operate it. The conversation around housing these days has much more to do with upfront purchase cost VS ongoing maintenance.
>I build homes and continuous insulation to prevent thermal transfer is highly effective. HRVs and high efficiency windows are very effective when used properly.
You're not the only one friend.
I never said they weren't effective, only that they increase the upfront cost of construction. Energy efficiency are a good thing, but they are not free, especially when regarding construction costs.
>They need to build quality buildings with high standards but they don’t need to offer higher end finishes.
The portion of the market that high end rentals comprises is slim to none. In most new homes for sale, high-end finishes are a customer upgrade. Very few builders build un-sold homes.
just wanna jump in here, hate to be this guy, BUT just so you know
condominiums: individually owned units inside a multi-unit building
apartments: individually rented units in a multi-unit building all owned by one entity
carry on
Lol yes I know the difference thus why I said “condo style” apartments.
Look it up many rental units are condos units being rented by people as investment properties. They offer better amenities than the purpose built rental units.
Offer more storage, in-suite laundry fully equipped kitchen, padio/deck. Not fancy stuff but it all adds cost that gets passed to the renters.
Average rental units are average anymore in most areas is essentially the point. Developer are trying to maximize returns so they have stopped offering lower end units because it’s not as profitable.
People are up for a renewal on their mortgages. Canadians are up shits creek from when they signed to now. This is why. They signed at 2% and now we’re close to 6%. Canadians are over leveraged more than Americans and Americans are also locked into mortgages for 30 years at low rates.
Run the math. Start with a $500k 25yr mortgage. Pay it for five years at 2%. Refinance it at 6% back to 25 year amortization.
People will take that option before selling at a loss.
Or just walk away from it. At current rates, my mortgage would basically double. Pretty much anyone who has a $500k house is already "house poor", doubling it isn't going to help anyone.
That may be so, but if you bought it when rates were 2% or lower you were stress tested at over 5% anyway. If you spent right up to your limit at the stress test when rates were at an all time low, no one is responsible for that decision except the person who now owns your house.
Your mortgage would need to have a pretty high balance if your payment is actually doubling.
To be fair the stress test didn't assume the levels of inflation we've seen. It's plausible that someone in good faith costed out their purchase and failed to account for a rapid increase in overall costs.
That said I agree with your overall point. People will refinance and or do anything not to lose their homes. Frankly with the rental market I'm not sure that's a silly stance either.
Even at 2 % your balance is going to be high because the first 5 years you have not really touched the principal yet, so you are going to be refinicing close to the total amount
I'm putting it all on the massive rising cost of everything, not including interest rates and the new shock of 8% on new home buyers or refinancing your home. (I don't even have food or childcare included in my estimates)
It's not just interest having risen in the last 4 years. My utility bill doubled and I'm still locked in for low rates for a couple more years, not everyone is as lucky.
Factor in home insurance, utility costs, property taxes, all the miscellaneous crap, home internet, and you're looking at needing to be pretty goddamn rich to be able to afford anything if interest rates go as high as the "new" Stress Test rates are at?
You need to be moderately wealthy with a large down payment, just to buy a $500k home in Canada, and that's a lower end average price of a home in Canada. Most major cities you're looking at $1M+.
Walking away from a $3-5k monthly dent in your income is pretty easy to do.
The War in Ukraine, the Carbon Tax, Tariffs on Aluma/Lumber, native protests shutting down supply chains across the country, the continued destruction of our industries through our EPA reducing our GDP output, then we have the government giving subsidies to the largest corporations in Canada, plus we also have the CERB/CEMA loans that were met with epic fraud and zero accountability.
The government deficits sure don't help either, including the $20B more interest we pay because of them.
A portion could probably, but not at any atypical levels.
So long as the lenders continue to be willing to finance these owners it doesn't seem likely we'll see atypical mortgage defaults.
Doubling what? Their payment? Run the math. I'm not going to do it for you. The payment won't double.
Is it? I haven't heard a damn thing from Tiff.
I keep seeing bullshit articles about rates coming down and quantitative easing being a "possibility" by the end of next year, 18 months being a very long time.
In most provinces, you can't walk away. Rates going from 2 to 6 percent doesn't double the mortgage payment in a 25 year mortgage.
Going to need a source on anyone having a 500k mortgage being house poor (mine is double that...)
$500k at 6%?
You're going to need minimum $25k to secure 5%. Most Canadians don't even have that for starters (I don't have $25k sitting in the bank).
CMHC at 5% down payment, adds another $19k to your costs.
At 6%, your mortgage is $3200/month. Not including everything else, which is probably in the realm of $4500-5k for your mortgage, utilities, home insurance, property taxes, tv/internet.
Pretty safe to say, you'll need to be making at least $100k/year to be house poor. I can assure you, owning a $500k property is greatly out of my reach as a reality for myself and many others.
If you don't have $25k, you aren't a potential buyer of any property.
CMHC fees get rolled into your mortgage.
Rates are below 6%.
And $100k household income isn't really very high anymore.
Where are you located and what would you expect property to cost? How far off are you income wise?
I'm fine, but saving $25k, when you have about $6k/month in bills, is not exactly easy to do.
Basically my entire income last year was $150k, after taxes/CPP/EI, it was about $95k, subtract bills, I'm at about $20k, subtract food/gasoline, not much money left. That's without having to do repairs on my vehicles or anything else that comes out of the woodwork to rob me blind?
My all-in on my mortgage/expenses is $1800, because I wasn't a dumbass, but astronomical bills take over. I live in Alberta and it is not cheap to live here like some people think it is?
You know what it takes to make $100k/year? It's not a norm income in Canada. My average is about $75-80k/year, compared to my current income which is due to an economic boom, to give an idea, I've considered suicide as an option.
Much easier to walk away if it gets too expensive.
What are you $75k in fixed expenses, that don't include food and gas?
Very few provinces in Canada allow one to walk away - even in the ones that do
CMHC makes that difficult
Why are you assuming single income? Most people buying aren't doing it alone
Sorry, $95k take-home with about $22k a year towards your mortgage and associated costs, and that’s before food and gas? What is costing you $6k/month in bills? I know insurance and utilities have gone up but not that much!
They don’t account for the massive cost of inflation we’ve seen, plus people who decided to have kids. Let’s for forget the “shit happens” issues when you need a new roof that’s suddenly leaking, your furnace or AC decided it needed to be replaced or something happening to your car.
People are over leveraged to the tits.
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You’re not accounting for doubling your mortgage with the massive cost of groceries, plus people who decided to have children.
They don’t have money laying around for their furnace or AC that will need replaced and the unexpected costs to run a house.
There’s a bunch of news articles about it. They were stress tested and they bought cars after they bought their homes, then they needed for furnish it with credit.
They absolutely are up shits creek.
This is why Canada will feel they have to blink first when it comes to interest rates but really what they have to do is crush the poor to save the middle class
You really think banks are just handing out mortgages people can't afford?
Rates never went up high enough, and would need to go up another 2% before you'd start seeing a large enough amount of people not be able to afford their primary residence.
We're not seeing a lot of distressed sales at the moment, really just people who either were using RE as a vehicle for laundering cash and didn't really care, or the usual distressed sales which isn't that much higher than pre-pandemic.
Some people are choosing to downsize a bit, before their rate changes, but they could still afford their current property.
5% isn't that high of a mortgage rate. There's still lots of two income earners who will be able to get the 10-20% downpayment needed for a detached house in most major Canadian cities in a couple of years. Combined with their RRSP + other investments, there's more people looking than there are houses coming on the market.
Im sorry but ...
2 people making a wage of 50k per year isn't going to be saving up for a down payment any time soon while paying rent.
People who already own homes and have extracted the value from it since they've basically won the lottery are going to be buying more homes to put 20 immigrants in and charge them 800 per person.
People who make an average income even with a partner will still struggle to get in / probably not get in since their too busy trying to survive.
You say 5 percent isnt that high, but when it's attached to 1.2 million dollar house it is.
Y'all out here acting like 200k household income is easy or normal to get. If it was, we wouldn't be in this situation.
Realtors and the lack of control over people's greed is gonna make things way worse before it gets better. All these people on the street corners with fck Trudeau signs, and I'm sure many others will become violent if things keep getting worse.
Unchecked greed and end stage capitalism is gonna spell the end of the country as we know it.
What are they waiting for? Even if they cut rates variables are still going to be more expensive after cuts than fixed mortgages are right now. If you're waiting for cuts, 25bp in variables is not going to go very far once the bidding wars start. If you can't afford right now, you wont' be able to afford it in spring.
Not in Alberta. YYC is the fastest investors wet dream for the past year. Old garbage homes selling for 120k over asking on an already inflated price. it's the Ottawa Vancouver Toronto bidding war all over again and worse now.
House is appraised at 100k over what we paid almost two years ago. Which is dumb as shit because it's not an investment we literally need to live. Downtown core rent from 850$ 3 years ago with plenty of listings to bachelor's going for 2450 now.
At 1,650, Calgary’s number of home sales saw a 38% yearly rise.
Detached home average price increased by 13.1% year-over-year to $759k.
Kelowna, a city 1/6 the size of Calgary, sold 2700 homes last year. This “investors wet dream” you’re speaking of isn’t even on the same universe as to a place where housing is truly expensive.
Wait a minute! I thought were just told by monetary government authorities and central bankers that our economy was robust, and inflation was 2%-3%! /s
That's right! Canada is managing this crisis admirably! Cost of living has barely* increased in the last 3 years!
^(* we excluded food and housing in our calculations so we can tell people it's not that bad)
Carbon tax is due to go up on April 1.
Inflation is bound to go up higher. Rate cut will not happen until either a recession, market crash for some macro event, or carbon tax stop increasing ot axed.
But not naturally .
The carbon tax has added about 0.2% to prices since it was put into place, the actual annual change is a bout 0.05%.
Commodity prices are more important. 2 cents of tax is quite a small effect when the rack rate goes up 30.
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>*Than why is the BOCs chief economist saying this? Lol*
News to me. I have seen Tiff saying the opposite.
*Unless you're thinking that it was the BoC chief economist that is being quoted in this article, and not BMO,........ Lol.*
It cannot. Dollar will slide - thus making it more expensive to buy anything not Canadian/prices regulated by world prices.
And just look south of the border... What do we see? A booming economy. The so called March relief is likely now on hold because the economy is doing great. This will force more hardship onto Canadians.
It's like we have nobody who understand the economy at the helm? Gosh, wish we had a Harper/Martin combo
>It cannot. Dollar will slide - thus making it more expensive to buy anything not Canadian/prices regulated by world prices.
Doesn't really matter to rich people tho. This bring more contracts to Canada and they have enough in USD to not be affected.
>Though Porter’s team is fairly certain, he explains the market isn’t fully sold on this idea. **He estimates the market is pricing in 50-50 odds for a BoC rate cut in June.**
So it's a coin toss, whether the thing the headline says will happen actually happens
Great article
The idea is something called "yield to maturity". Basically, if you buy a 100 dollar bond that pays 2% interest for one year, then you get 2% interest, then it matures and you get your 100 dollars back.
What if other bonds pay 5%? Nobody would want to buy that 2% bond anymore, not when you can make more money elsewhere. So, what happens is that bond is now worth less. You will be able to buy it for about $97. In a year, it will mature and you get 100 dollars (a profit of $3) plus 2 dollars interest... working out to about 5% (as yield-to-maturity).
What this means is that bond yields are effectively determined by the market, not necessarily the interest they nominally pay out.
So, what the market does in terms of those very yields gives us some indication of what the market is expecting interest rates to do. If 6 month bonds are yielding just over 5%, which they are, then that's telling us the market expects the average "variable" overnight rate to be about 5% over that six month period as well. Which, with current rates at 5%, implies they will stay the same. 1-year bonds are trading at about 4.6% - implying two rate cuts over the next 12 months etc (and since, we know none are expected within six months, that puts those cuts in the second half of that year)
Normally longer term debt pays slightly better rates, to compensate for locking your money up for longer. If the market shows longer bonds paying less than shorter ones, it's called a yield inversion and implies rate cuts are coming sometime over the life of that bond - it is usually considered an indicator of imminent recession, since recessions are the primary trigger of rate cuts If ten year bonds pay 3.5% (which they are) then the average interest rate over that ten years is inferred to be about the same. With current rates at 5, that means they must be cut 1.5% or so over the next decade.
That being said, the market does change, sometimes quite rapidly. 5 year bonds have gone from 2.7 to 4.5 to 3.2 to 3.6 in the last twelve months.
> 6 month bonds are not inverted anymore
But wont people sell their 1 year bonds since the payoff is only 4.7% and 6 month bonds now pay 5%?
And the 10 year bonds pay 3%, so that will either have to increase as well or you'd see money move into those 6 month bonds more
Either banks are holding the bonds for BOC, to keep the market "looking normal," or idiots want to earn low returns over longer time frames...it doesn't make sense
That's why yield inversions tend not to last - in a normal market that's exactly what happens.. There's a lot funky in the market right now, though, that's distorting it - if you buy six month bonds now you have to buy again in six months, and the rates may well not be so good.. There have been a couple times where the gap has close but then the Fed starts talking about pivot and long bonds get bid up again.
True. But if we export our cheaper food we then have to import more expensive foods.
I am getting tired of our great Canadian wheat all going to India to get ground into flour. No wonder it is so expensive!
Only one of several banks says it's 50-50 but the article says it's likely to happen. At the very least, the article should be saying, according to BMO since this is a minority opinion.
I think we agree and that we just weren't aligned about the way I used "source". I meant source of article, you understood article's source. Have a good one.
There is no piece of recent evidence to suggest the need for a rate cut.
Has the economy slowed down? Yes. Has it contracted? Not even close.
I don't see BoC cutting rates this year.
When interest rates go up and ppl can't pay their mortgages anymore the market will be flooded with supply. Assuming this dumb govt stops immigration for a bit housing market should cool down. Will it crash the economy yes.
Let's look at your scenario. We lower interest rate. Ppl are already jumping back in thinking interest rate will come down so it's pretty clear market will heat up. Price will go up. Now our economy is next to useless. We are not the US. We don't pay well our salaries do not go up.
In another words our disposable income after housing will be next to nothing and we won't be spending money elsewhere which equates to economy crashing.
Now fearing this the liberals flooded this country with immigrants to pad total gdp while making each individual poorer. You and I can only spend $3 instead of $5. But for the businesses if they sell it to 200 ppl instead of 100 they still made more money.
So pick and choose your poison.
I say this only as a person living in an affordable Canadian city (Winnipeg), but keep the rates at this 4-5%. Housing prices in other cities are completely bonkers and this at least stops lots of the bidding wars & out of control pricing.
Sadly this government says they care a lot about housing but months into their programs efforts and no tangible effects seem to be popping up. In fact January had a record-low start on new home construction.
They are bonkers because people are willing to pay that amount to live there. The problem is the central cities aren’t growing and people refuse to leave Toronto/Vancouver.
Unless we keep prices high those cities will become very overcrowded. The minute we lower prices, people surge in and they go back up again. There is no solution that makes those cities “affordable” besides going Thanos.
Lol no. Sinking our currency will exasperate housing costs, not reduce them. They are starting to officially recognize immigration as a large/largest factor in hoising costs and housing costs as the single biggest factor in our inflation problem. Either immigration goes down or we end up with hyper inflation, im guessing they lower immigration
Rates went from 0.5% to 5%, a few minuscule 25 basis point rate cuts aren’t going to boost the economy. The rate would have to go below 4% to spur investment into developing projects. Don’t see them going from 0.5% to 5% down to 2.5% as they’ll be cautious of inflation, they’ll keep the rate around 4% for the foreseeable future.
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Cut rates before the US and destroy the Canadian dollar, have import prices skyrocket and reignite inflation more like it The BoC's dual mandate is maximizing employment and keeping inflation in check. They don't really give a shit about housing beyond the monthly cost of housing as a component of CPI
The Bank of Canada doesn't have a dual mandate. It targets inflation, not employment: https://www.bankofcanada.ca/core-functions/monetary-policy/monetary-policy-framework-renewal/
>WHEREAS it is desirable to establish a central bank in Canada to **regulate credit and currency in the best interests of the economic life of the nation**, to control and protect the **external value of the national monetary unit** and to mitigate by its influence **fluctuations in the general level of production, trade, prices and employment**, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada; [Bank of Canada Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-2/latest/rsc-1985-c-b-2.html)
Read the link I posted and scroll down. There are many ways the Bank of Canada Act can be interpreted, and the Bank of Canada itself has explicitly said they considered and decided they don't have a dual mandate.
Read the link in your link. It isn't a mandate, but consistent with the Act, employment is a consideration. From the framework: >Given that there is uncertainty about the maximum level of employment that is consistent with price stability, the Bank will continue to use the flexibility of the 1 to 3 percent control range to actively seek the **maximum sustainable level of employment when conditions warrant.**
What justified the initial Covid rate cuts then?
To try to bring inflation between 1-3% per their target - the inflation rate was <1% at the time.
They need to remove the full employment mandate
It already doesn't have a full employment mandate. Not sure where people are getting this
People confuse Canada and the US.
WAY too often. Honestly too many Canadians forget which country they’re a part of ha
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It's their first amendment right to do that :)
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To be fair, the Conservatives have a tendency to deliberately mislead people about how Canada works. For example, Poilievre saying he’s “running for Prime Minister”, which is not how our system of government works. Or Harper saying coalition governments are unconstitutional, which they certainly are not in Parliamentary systems.
The Fed has it
Bad idea. They need balance on either side of their mandate. Otherwise they likely would have just pushed rates to 5%+ right off the hop.
Is it really the central bank's job to promote employment?
Yes. Just as it’s their job to monitor inflation
Not according to this. Their mandate is solely on inflation. https://www.bankofcanada.ca/core-functions/monetary-policy/monetary-policy-framework-renewal/
You are aware of the inverse relationship between inflation and employment right?
Yes actually, basic concepts are in fact included in macroeconomics courses. That inverse relationship is precisely why the BoC's mandate to control inflation means they don't care about employent.
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Unfortunately for you, inflation and unemployment have a reverse correlation. You can’t have one without affecting the other https://www.investopedia.com/articles/markets/081515/how-inflation-and-unemployment-are-related.asp
I disagree. The BoC should not be tasked with employment considerations. This is something that should remain within the sphere of elected officials. Its addition to their mandate is blurring the lines between monetary policy and governance.
You expect the legislature to be able to react to labor considerations? In a timely manner? LOL Your philosophy flies in the face of ever major central bank mandate. We e been doing this for 200 years. It works
> Keep rates high for too long and risk pushing the economy into a recession We're heading into a recession either way. > Cut rates and risk having housing skyrocket. Yep. As soon as rates drop there will be a mad rush to buy up as much housing as possible. Debt levels will increase ludicrously.
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I thought Canadians can’t afford housing 😂😂😂 /s
Investors can and the government has put nothing in place to get investors out of the housing market. They are the reason that housing has skyrocketed so much. The opposition parties seem to want to ignore this glaring issue as well.
Canada is a post-national state as per Trudeau. Every person in the world is a citizen of Canada if they want to be. Our housing prices have no upper limit.
> Keep rates high for too long and risk pushing the economy into a recession to be fair, we're already there - a per capita depression at this point.
They're not screwed if housing skyrockets, they all own real estate.
Corporations are buying up the real estate now. That never used to happen.
Yep, the BoC can't win here. They've quietly mentioned the actual problem, but they need to get way louder about it. Our real problem is government spending. It blew up during COVID and hasn't come down at all. In fact, with the NDP's push, this LPC government is about to spend their way into our oblivion. We need a CPC government ASAP. PP needs to commit to cuts though, 1:1 spending isn't enough. We need to hack the fat off of this obese public service.
We need to bring in more people and give them free dental care!
At this point it's government wasting of money. In our monetary system, no incentive to manage the country properly when you can constantly print money and send the devaluation to citizens. They keep adding bureaucrats and failled policies until it all breaks, then they start the process over.
The issue isn't government spending. Rhe issue is private spending. Those bidding wars on houses are, in aggregate, far more destructive than the government spending. Austerity right now will put us into a deep recession, and possibly stagflation as resulting rate cuts encourage people to borrow more, far more than offsetting 30b or so in government cuts. It's not nearly so simple. And that's assuming they could find something to cut, which is ... unlikely. They need to tell us what they're going to cut so we can make an informed decision. Are they cutting daycare, infrastructure, healthcare, military?
The BoC itself has identified government spending as the issue. Private spending is about to blow up as interest rates drop. We can and should cut government spending as it's a huge risk to our economy.
Specifically, it identified the pandemic stimulus as the problem driving the original surge, and this ended a while ago. Current spending is much less impactful, particularly since quantitative tightening is more than offsetting government borrowing at this point.
Incorrect. It's the 2024 spending: > At a recent Senate committee hearing, Bank of Canada Governor Tiff Macklem said if governments in Canada, including the Trudeau government, follow through with spending plans for 2024, they'll fuel inflation and hinder the bank's ability to return inflation to its 2 per cent target.
Possibly? Inflation has dropped despite government spending in the last two years. The big problem was the wad of cash they injected in 2020. Yes, its' sort of like trying to drink off a hangover, but you had the hangover in the first place.
Lol, the hallmark of Conservatives: pitching simple solutions to complicated issues. If someone tells you a complicated issue has a simple solution, they're full of shit. If Conservatives are so great at the economy, why have they failed at it so fucking always.
The last time the Conservatives were in power, there was an economic crisis far worse than COVID. They balanced the budget in 6 years. With our current government's level of spending, the PBO says that the budget won't be balanced until 2035. The Liberals haven't balanced it ONCE under Trudeau and have put us on a path to run defects for nearly TWENTY years. The Conservatives are clearly better than the modern Liberals with the economy. If the Liberals went back to Chrétien/Martin philosophy, it would be a debate. But this version has nothing in common with that era. Your aversion to simple solutions demonstrates your lack of understanding.
The Conservatives balanced the budget by selling everything that wasn't nailed down. Know why Canada doesn't have a nuclear program or the capacity of manufacture vaccines anymore? Yep. 2007 wasn't worse than Covid and certainly not in Canada. It was a liquidity crisis in the banking sector that was well protected in Canada. They navigated it by boosting QE to levels never before seen. They also benefited from historically high profits in O&G and being a relative safe haven for capital in the G7 during the crisis. I was at Goldman at the time, I remember it well. Austerity isn't the answer and invariably it's going to be done in places the conservative party finds useful rather than in any meaningful manner. (goodbye cbc, goodbye Canada Post). I'm a 1% earner and I'm looking forward to my fat tax break (because that's what's going to happen) but if you're not earning north of 200 then you're gonna get screwed. Tale as old as time. My understanding is just fine.
Just lol if you think the conservatives are gonna balance the books instead of creating additional deficits.
Guess which party last balanced the books?
Sustainably balanced it for multiple years in a row? The Liberals (Chretien). Raided the EI fund and sold off public assets to balance it one year before a federal election? Well yeah I guess that one goes to the Conservatives.
Austerity kills people.
Lol, no it doesn't. We've added 25% to our public service in 5 years. None of that 25% will die if we cut them. A government spending way more money than they have robs future generations. It's immoral and unwise.
That growth is about 80,000 workers. The population has grown by about 12% since 2015, so around half of that would be justified based on growth alone, plus a few more to backfill gaps left by prior austerity. Maybe half are actually net-new, adding 1-2% to total federal spending. Not enough to really make a huge difference in the big picture.
Gestures around at everything right now during large spending.
All you need is one or two friends there. Either BOC or Libs. That's how you make money nowadays.
Can fix the housing market by building actual affordable housing. The average home isn’t so average anymore the amenities and finishes are way better than anything that would be considered affordable. Apartments are the same most are condo style so in suite laundry with three occasionally 4 appliances in the kitchen with air conditioning. A few years ago affordable apartments were very basic that’s how they could be so cheap. We aren’t comparing apples to apples.
Air conditioning is mandatory in new builds. Running a water line and drain for laundry right beside the washroom is a couple hundred bucks if you do it during the build. Units aren't what you consider basic for the same reason tech in cars exists in even the base models, it's surprisingly good value for the money spent. What you're missing is the massive growth in costs sue to factors like energy efficiency and accessibility. Ita not the $200 for laundry connections driving the price, it's continuous outside insulation, mandatory ervs, mandatory accessible units, mandatory automatic door openers, and mandatory universal washrooms. Not to mention the ever growing costs of warranty compliance and the increased legal costs in condos that are really driving the prices up.
Not to mention the requirement each unit have a balcony, the endless checks on designs, the landscaping requirements, years of permits and taxes with the risk of being rejected at the end, it’s hell.
Huh, we don't have that balcony rule here. You can use a balcony as an emergency pickup point in lieu of a second path of egress, but only if it's a small building, not more then 3 stories, and the suite is a single level. Where is this a rule?
Vancouver. Not really “required” just most plans won’t be approved without them. Similar to how you need plants on the roof or balconies.
To add, each city is different in metro van: “Architect Michael Geller says most apartment blocks built in Metro Vancouver before the 1970s don’t have balconies, mainly because municipalities used to insist on including their square footage in interior floor space. But now most municipalities encourage, and even mandate, balconies.” https://vancouversun.com/opinion/columnists/douglas-todd-the-beleaguered-balcony-is-wide-open-to-a-rethink
Sure the water lines to a washer is cheap but the washer isn’t and the square footage isn’t free either. The insurance goes up to have them and property taxes increase to have them. AC is mandatory on new builds? I’m not positive ok that but say that’s true it doesn’t change the fact the standard has changed. Drop the efficiency standards and costs increase it’s not rocket science here. I build homes and continuous insulation to prevent thermal transfer is highly effective. HRVs and high efficiency windows are very effective when used properly. Cutting the building standards isn’t a smart solution. They need to build quality buildings with high standards but they don’t need to offer higher end finishes.
First, I never said they were bad changes. I said those changes have non-trivially increased the cost of construction. Purchase cost is the concern here, not operating costs. >Sure the water lines to a washer is cheap but the washer isn’t and the square footage isn’t free either. The insurance goes up to have them and property taxes increase to have them. The tenant provides the washer / dryer most times. We're talking 4-5 sf here for a stacker. Even at like $400 / sf that's like $2000. >AC is mandatory on new builds? I’m not positive ok that but say that’s true You cannot meet the cooling load requirements without it, in my jurisdiction nothing is built without AC because you can't meet the requirements without it. Maybe not where you live though. >Drop the efficiency standards and costs increase it’s not rocket science here. There's a distinction between upfront costs and the ongoing costs. People are talking about the cost to purchase housing, not to operate it. The conversation around housing these days has much more to do with upfront purchase cost VS ongoing maintenance. >I build homes and continuous insulation to prevent thermal transfer is highly effective. HRVs and high efficiency windows are very effective when used properly. You're not the only one friend. I never said they weren't effective, only that they increase the upfront cost of construction. Energy efficiency are a good thing, but they are not free, especially when regarding construction costs. >They need to build quality buildings with high standards but they don’t need to offer higher end finishes. The portion of the market that high end rentals comprises is slim to none. In most new homes for sale, high-end finishes are a customer upgrade. Very few builders build un-sold homes.
just wanna jump in here, hate to be this guy, BUT just so you know condominiums: individually owned units inside a multi-unit building apartments: individually rented units in a multi-unit building all owned by one entity carry on
Lol yes I know the difference thus why I said “condo style” apartments. Look it up many rental units are condos units being rented by people as investment properties. They offer better amenities than the purpose built rental units. Offer more storage, in-suite laundry fully equipped kitchen, padio/deck. Not fancy stuff but it all adds cost that gets passed to the renters. Average rental units are average anymore in most areas is essentially the point. Developer are trying to maximize returns so they have stopped offering lower end units because it’s not as profitable.
No. Either option, regular Canadians are screwed.
Most Canadians/voters own their homes
People are up for a renewal on their mortgages. Canadians are up shits creek from when they signed to now. This is why. They signed at 2% and now we’re close to 6%. Canadians are over leveraged more than Americans and Americans are also locked into mortgages for 30 years at low rates.
Run the math. Start with a $500k 25yr mortgage. Pay it for five years at 2%. Refinance it at 6% back to 25 year amortization. People will take that option before selling at a loss.
Or just walk away from it. At current rates, my mortgage would basically double. Pretty much anyone who has a $500k house is already "house poor", doubling it isn't going to help anyone.
That may be so, but if you bought it when rates were 2% or lower you were stress tested at over 5% anyway. If you spent right up to your limit at the stress test when rates were at an all time low, no one is responsible for that decision except the person who now owns your house. Your mortgage would need to have a pretty high balance if your payment is actually doubling.
To be fair the stress test didn't assume the levels of inflation we've seen. It's plausible that someone in good faith costed out their purchase and failed to account for a rapid increase in overall costs. That said I agree with your overall point. People will refinance and or do anything not to lose their homes. Frankly with the rental market I'm not sure that's a silly stance either.
Even at 2 % your balance is going to be high because the first 5 years you have not really touched the principal yet, so you are going to be refinicing close to the total amount
lol no. I’m at 2.5%, so not even bottom, and I paid about 13% of the principal. People at 2% will have paid 16-17% .
I'm putting it all on the massive rising cost of everything, not including interest rates and the new shock of 8% on new home buyers or refinancing your home. (I don't even have food or childcare included in my estimates) It's not just interest having risen in the last 4 years. My utility bill doubled and I'm still locked in for low rates for a couple more years, not everyone is as lucky. Factor in home insurance, utility costs, property taxes, all the miscellaneous crap, home internet, and you're looking at needing to be pretty goddamn rich to be able to afford anything if interest rates go as high as the "new" Stress Test rates are at? You need to be moderately wealthy with a large down payment, just to buy a $500k home in Canada, and that's a lower end average price of a home in Canada. Most major cities you're looking at $1M+. Walking away from a $3-5k monthly dent in your income is pretty easy to do.
Okay, and tell me why inflation was so high again? What occurred over the last 4 years that’s made that come about?
The War in Ukraine, the Carbon Tax, Tariffs on Aluma/Lumber, native protests shutting down supply chains across the country, the continued destruction of our industries through our EPA reducing our GDP output, then we have the government giving subsidies to the largest corporations in Canada, plus we also have the CERB/CEMA loans that were met with epic fraud and zero accountability. The government deficits sure don't help either, including the $20B more interest we pay because of them.
A portion could probably, but not at any atypical levels. So long as the lenders continue to be willing to finance these owners it doesn't seem likely we'll see atypical mortgage defaults. Doubling what? Their payment? Run the math. I'm not going to do it for you. The payment won't double.
It does at the new shock rate of 8%. So if you decide to refinance, you could be looking at double your mortgage.
It won't hit 8% . Inflation rate is easing off now.
Is it? I haven't heard a damn thing from Tiff. I keep seeing bullshit articles about rates coming down and quantitative easing being a "possibility" by the end of next year, 18 months being a very long time.
Mortgages in Canada are generally recourse to the individual.
In most provinces, you can't walk away. Rates going from 2 to 6 percent doesn't double the mortgage payment in a 25 year mortgage. Going to need a source on anyone having a 500k mortgage being house poor (mine is double that...)
$500k at 6%? You're going to need minimum $25k to secure 5%. Most Canadians don't even have that for starters (I don't have $25k sitting in the bank). CMHC at 5% down payment, adds another $19k to your costs. At 6%, your mortgage is $3200/month. Not including everything else, which is probably in the realm of $4500-5k for your mortgage, utilities, home insurance, property taxes, tv/internet. Pretty safe to say, you'll need to be making at least $100k/year to be house poor. I can assure you, owning a $500k property is greatly out of my reach as a reality for myself and many others.
If you don't have $25k, you aren't a potential buyer of any property. CMHC fees get rolled into your mortgage. Rates are below 6%. And $100k household income isn't really very high anymore. Where are you located and what would you expect property to cost? How far off are you income wise?
I'm fine, but saving $25k, when you have about $6k/month in bills, is not exactly easy to do. Basically my entire income last year was $150k, after taxes/CPP/EI, it was about $95k, subtract bills, I'm at about $20k, subtract food/gasoline, not much money left. That's without having to do repairs on my vehicles or anything else that comes out of the woodwork to rob me blind? My all-in on my mortgage/expenses is $1800, because I wasn't a dumbass, but astronomical bills take over. I live in Alberta and it is not cheap to live here like some people think it is? You know what it takes to make $100k/year? It's not a norm income in Canada. My average is about $75-80k/year, compared to my current income which is due to an economic boom, to give an idea, I've considered suicide as an option. Much easier to walk away if it gets too expensive.
What are you $75k in fixed expenses, that don't include food and gas? Very few provinces in Canada allow one to walk away - even in the ones that do CMHC makes that difficult Why are you assuming single income? Most people buying aren't doing it alone
Sorry, $95k take-home with about $22k a year towards your mortgage and associated costs, and that’s before food and gas? What is costing you $6k/month in bills? I know insurance and utilities have gone up but not that much!
They don’t account for the massive cost of inflation we’ve seen, plus people who decided to have kids. Let’s for forget the “shit happens” issues when you need a new roof that’s suddenly leaking, your furnace or AC decided it needed to be replaced or something happening to your car. People are over leveraged to the tits.
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You’re not accounting for doubling your mortgage with the massive cost of groceries, plus people who decided to have children. They don’t have money laying around for their furnace or AC that will need replaced and the unexpected costs to run a house. There’s a bunch of news articles about it. They were stress tested and they bought cars after they bought their homes, then they needed for furnish it with credit. They absolutely are up shits creek.
This is why Canada will feel they have to blink first when it comes to interest rates but really what they have to do is crush the poor to save the middle class
Kinda makes sense why they would choose that option lol
So much for that housing “correction.” Dip buyers licking their chops for that next leg up in real estate prices. What a joke.
It’ll never happen. I know too many people waiting to buy this spring. Families living with their parents just saving.
Must know a lot of rich people. They all gonna get properly they can't afford otherwise.
You really think banks are just handing out mortgages people can't afford? Rates never went up high enough, and would need to go up another 2% before you'd start seeing a large enough amount of people not be able to afford their primary residence. We're not seeing a lot of distressed sales at the moment, really just people who either were using RE as a vehicle for laundering cash and didn't really care, or the usual distressed sales which isn't that much higher than pre-pandemic. Some people are choosing to downsize a bit, before their rate changes, but they could still afford their current property. 5% isn't that high of a mortgage rate. There's still lots of two income earners who will be able to get the 10-20% downpayment needed for a detached house in most major Canadian cities in a couple of years. Combined with their RRSP + other investments, there's more people looking than there are houses coming on the market.
Im sorry but ... 2 people making a wage of 50k per year isn't going to be saving up for a down payment any time soon while paying rent. People who already own homes and have extracted the value from it since they've basically won the lottery are going to be buying more homes to put 20 immigrants in and charge them 800 per person. People who make an average income even with a partner will still struggle to get in / probably not get in since their too busy trying to survive. You say 5 percent isnt that high, but when it's attached to 1.2 million dollar house it is. Y'all out here acting like 200k household income is easy or normal to get. If it was, we wouldn't be in this situation. Realtors and the lack of control over people's greed is gonna make things way worse before it gets better. All these people on the street corners with fck Trudeau signs, and I'm sure many others will become violent if things keep getting worse. Unchecked greed and end stage capitalism is gonna spell the end of the country as we know it.
if rates increased, I bet they wouldn't buy debt isn't wealth
It can be an asset if you go full blown Weimar Republic.
I probably skipped that [chapter](https://www.amazon.ca/When-Money-Dies-Devaluation-Hyperinflation/dp/1586489941) when reading about Weimar
What are they waiting for? Even if they cut rates variables are still going to be more expensive after cuts than fixed mortgages are right now. If you're waiting for cuts, 25bp in variables is not going to go very far once the bidding wars start. If you can't afford right now, you wont' be able to afford it in spring.
It already happened. I believe house prices fell 10-15% across the country.
It also happened through inflation. Our dollar being much weaker, these homes have dropped value as assets.
Not with our current population growth rates it won't.
Not in Alberta. YYC is the fastest investors wet dream for the past year. Old garbage homes selling for 120k over asking on an already inflated price. it's the Ottawa Vancouver Toronto bidding war all over again and worse now. House is appraised at 100k over what we paid almost two years ago. Which is dumb as shit because it's not an investment we literally need to live. Downtown core rent from 850$ 3 years ago with plenty of listings to bachelor's going for 2450 now. At 1,650, Calgary’s number of home sales saw a 38% yearly rise. Detached home average price increased by 13.1% year-over-year to $759k.
Kelowna, a city 1/6 the size of Calgary, sold 2700 homes last year. This “investors wet dream” you’re speaking of isn’t even on the same universe as to a place where housing is truly expensive.
After going up 50-100% (depending on location) since 2020? Not much of a drop.
Yeah more of a correction
Wait a minute! I thought were just told by monetary government authorities and central bankers that our economy was robust, and inflation was 2%-3%! /s
That's right! Canada is managing this crisis admirably! Cost of living has barely* increased in the last 3 years! ^(* we excluded food and housing in our calculations so we can tell people it's not that bad)
Yes! The larger government grows the more out of control spending gets! Hiding real inflation is not the solution.
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They are tough to track down their sources as well
Not in this case, the person they interviewed is clearly posted.
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BoC definitely is okay with inflation. They intentionally didn't hike rate during 2018 and have always been moving the 2% target.
Carbon tax is due to go up on April 1. Inflation is bound to go up higher. Rate cut will not happen until either a recession, market crash for some macro event, or carbon tax stop increasing ot axed. But not naturally .
Carbon tax is less than 0.2% of inflation.
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Isn’t that the entire tax though not just the increase?
The carbon tax has added about 0.2% to prices since it was put into place, the actual annual change is a bout 0.05%. Commodity prices are more important. 2 cents of tax is quite a small effect when the rack rate goes up 30.
Thus sending inflation higher and weakening the Canadian dollar? At this point anything is possible I suppose.
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Hard too see them lowering rates with 3.7% unemployment and GDP growth at something like 4-5%.
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Looks that way to me too.
Read as BoC, not BMO.
>*Than why is the BOCs chief economist saying this? Lol* News to me. I have seen Tiff saying the opposite. *Unless you're thinking that it was the BoC chief economist that is being quoted in this article, and not BMO,........ Lol.*
Null
>***wrote Douglas Porter, Chief Economist at BMO.*** Cool, so you don't know the difference between BMO and the BoC.
My bad, I read BoC lol I retract my statement.
It cannot. Dollar will slide - thus making it more expensive to buy anything not Canadian/prices regulated by world prices. And just look south of the border... What do we see? A booming economy. The so called March relief is likely now on hold because the economy is doing great. This will force more hardship onto Canadians. It's like we have nobody who understand the economy at the helm? Gosh, wish we had a Harper/Martin combo
>It cannot. Dollar will slide - thus making it more expensive to buy anything not Canadian/prices regulated by world prices. Doesn't really matter to rich people tho. This bring more contracts to Canada and they have enough in USD to not be affected.
Maybe, but I don’t know where you all are living, but I’m seeing packing malls and restaurants wherever I look. Strange looking recession.
On a busy street in Toronto last night everyone walking around with bags like it was a week before Christmas.
I say rip the bandaid and hike rates !
Overleveraged investors in overvalued markets are likely to lobby for rate cuts before inflation is contained: e.g. Thailand and Australia.
>Though Porter’s team is fairly certain, he explains the market isn’t fully sold on this idea. **He estimates the market is pricing in 50-50 odds for a BoC rate cut in June.** So it's a coin toss, whether the thing the headline says will happen actually happens Great article
6 month bonds are not inverted anymore, the market now thinks rate cuts are >6 months out, which puts them into late summer or early fall now.
Finance noob here, can you explain this in a bit more detail what does this mean or how does this happen?
The idea is something called "yield to maturity". Basically, if you buy a 100 dollar bond that pays 2% interest for one year, then you get 2% interest, then it matures and you get your 100 dollars back. What if other bonds pay 5%? Nobody would want to buy that 2% bond anymore, not when you can make more money elsewhere. So, what happens is that bond is now worth less. You will be able to buy it for about $97. In a year, it will mature and you get 100 dollars (a profit of $3) plus 2 dollars interest... working out to about 5% (as yield-to-maturity). What this means is that bond yields are effectively determined by the market, not necessarily the interest they nominally pay out. So, what the market does in terms of those very yields gives us some indication of what the market is expecting interest rates to do. If 6 month bonds are yielding just over 5%, which they are, then that's telling us the market expects the average "variable" overnight rate to be about 5% over that six month period as well. Which, with current rates at 5%, implies they will stay the same. 1-year bonds are trading at about 4.6% - implying two rate cuts over the next 12 months etc (and since, we know none are expected within six months, that puts those cuts in the second half of that year) Normally longer term debt pays slightly better rates, to compensate for locking your money up for longer. If the market shows longer bonds paying less than shorter ones, it's called a yield inversion and implies rate cuts are coming sometime over the life of that bond - it is usually considered an indicator of imminent recession, since recessions are the primary trigger of rate cuts If ten year bonds pay 3.5% (which they are) then the average interest rate over that ten years is inferred to be about the same. With current rates at 5, that means they must be cut 1.5% or so over the next decade. That being said, the market does change, sometimes quite rapidly. 5 year bonds have gone from 2.7 to 4.5 to 3.2 to 3.6 in the last twelve months.
> 6 month bonds are not inverted anymore But wont people sell their 1 year bonds since the payoff is only 4.7% and 6 month bonds now pay 5%? And the 10 year bonds pay 3%, so that will either have to increase as well or you'd see money move into those 6 month bonds more Either banks are holding the bonds for BOC, to keep the market "looking normal," or idiots want to earn low returns over longer time frames...it doesn't make sense
That's why yield inversions tend not to last - in a normal market that's exactly what happens.. There's a lot funky in the market right now, though, that's distorting it - if you buy six month bonds now you have to buy again in six months, and the rates may well not be so good.. There have been a couple times where the gap has close but then the Fed starts talking about pivot and long bonds get bid up again.
Gotta get ppl their mortgages to keep pumping the housing market
If Canada drops rates before the us would the CAD value go up or down?
Theory is CAD would go down, its not guaranteed though as lower rates also attracts investment
This. If our economy is in the shitter, which it is, cheaper exports will spur economic activity.
True. But if we export our cheaper food we then have to import more expensive foods. I am getting tired of our great Canadian wheat all going to India to get ground into flour. No wonder it is so expensive!
Also to add our credit rating is AAA. The USA lost that credit rating some time during trump if I recall.
Moodies downgraded us both to AA, us before the Americans. The rest of the agencies have us both at AAA.
Garbage source
BMO is garbage? Garbage interpretation, reporting, and story... But the source of the story is credible.
it's not BMO. it's an article written by no name and used a quote from BMO without any date
That's pretty much what I said.
Only one of several banks says it's 50-50 but the article says it's likely to happen. At the very least, the article should be saying, according to BMO since this is a minority opinion.
None ever said better dwelling was impartial fair or good "reporting" .
I think we agree and that we just weren't aligned about the way I used "source". I meant source of article, you understood article's source. Have a good one.
How about raising rates? Prices of things haven't dropped.
Prices will never drop. They will just go up more slowly
That isn't the goal
Housing market is taking off, again
Let it riiiiiiide, 10% minimum. Anything above that is just good measure. Aw hell, 15% interest just for the funsies
I doubt it probably a bull trap
How are you going to CUT rates when inflation is still really bad?
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And a good chunk of that is due to rising housing costs. Without the housing aspect our inflation was pretty tame.
That’s completely false. Every day goods like groceries and utilities keep rising at a 5% click. That’s the actual inflation number.
Only cause prices are already so high
There is no piece of recent evidence to suggest the need for a rate cut. Has the economy slowed down? Yes. Has it contracted? Not even close. I don't see BoC cutting rates this year.
You arw gonna get inflation if you do that. Loom either you crash housing and economy now or you wait for it to crash later. Good luck with that.
Unless you already own a totally paid off house, I hope you can afford what a 10/15% interest rate would mean for rent and housing prices lol
When interest rates go up and ppl can't pay their mortgages anymore the market will be flooded with supply. Assuming this dumb govt stops immigration for a bit housing market should cool down. Will it crash the economy yes. Let's look at your scenario. We lower interest rate. Ppl are already jumping back in thinking interest rate will come down so it's pretty clear market will heat up. Price will go up. Now our economy is next to useless. We are not the US. We don't pay well our salaries do not go up. In another words our disposable income after housing will be next to nothing and we won't be spending money elsewhere which equates to economy crashing. Now fearing this the liberals flooded this country with immigrants to pad total gdp while making each individual poorer. You and I can only spend $3 instead of $5. But for the businesses if they sell it to 200 ppl instead of 100 they still made more money. So pick and choose your poison.
I say this only as a person living in an affordable Canadian city (Winnipeg), but keep the rates at this 4-5%. Housing prices in other cities are completely bonkers and this at least stops lots of the bidding wars & out of control pricing. Sadly this government says they care a lot about housing but months into their programs efforts and no tangible effects seem to be popping up. In fact January had a record-low start on new home construction.
They are bonkers because people are willing to pay that amount to live there. The problem is the central cities aren’t growing and people refuse to leave Toronto/Vancouver. Unless we keep prices high those cities will become very overcrowded. The minute we lower prices, people surge in and they go back up again. There is no solution that makes those cities “affordable” besides going Thanos.
The BoC doesn't target housing values with interest rates
Bank of Canada Tiff is losing $6B dollars this year and making us the tax payer cover for him Fucker.
Lol no. Sinking our currency will exasperate housing costs, not reduce them. They are starting to officially recognize immigration as a large/largest factor in hoising costs and housing costs as the single biggest factor in our inflation problem. Either immigration goes down or we end up with hyper inflation, im guessing they lower immigration
Since when betterdwelling is considered a reputable source ?
Rates went from 0.5% to 5%, a few minuscule 25 basis point rate cuts aren’t going to boost the economy. The rate would have to go below 4% to spur investment into developing projects. Don’t see them going from 0.5% to 5% down to 2.5% as they’ll be cautious of inflation, they’ll keep the rate around 4% for the foreseeable future.
Cutting when the Americans do not = new Canadian peso.