What do low rates mean for a potential housing bubble?

Finance Minister Joe Oliver has assured Canadians there is no housing bubble developing, despite record low interest rates that may entice some buyers to purchase more home than they can likely afford.

“I’ve said again and again we don’t think there’s a bubble – the Bank of Canada agrees with that, CMHC (Canadian Mortgage and Housing Corp), OECD (Organization for Economic Cooperation and Development),” Finance Minister Oliver told reporters last week, according to the Financial Post. ““We’re, of course, monitoring the market. It’s not a huge concern at this point.”

Oliver has held an optimistic view of the housing market and its future since he took office in March of last year, and last summer, when a number of lenders dropped their five-year fixed rates, Oliver voiced his opinion that it is not up to the government to oversee interest rates.

“I don’t think it’s the role of government to set interest rates or rates for mortgages,” he told Business News Network in Mid-June. “The rates are quite low and they’ve been coming down but a very small amount.”

He also noted at the time that the market was healthy.

Interest rates have been a hot topic since the Bank of Canada slashed its overnight rate by one-quarter of one percentage point to ¾ per cent on January 21.

Several of the big banks followed by slashing their own prime rates and also offering special-priced fixed mortgage rates on various products. 

Almost Half of Canadian Credit Card Holders Have Debt

A poll by the Bank of Montreal found that 46 per cent of Canadians who hold a credit card have debt on the account. Following the holiday season 28 per cent of card holders added on average $1,192 to their card balance. Almost a third (30 per cent) of card holders carry a monthly balance although 51 per cent do. Millennials are most likely to view a credit card as ‘extra spending money’. BMO’s Nick Mastromarc says that while credit cards are a useful payment tool they should not be viewed as additional borrowing and warns that: “unchecked spending habits can result in getting stuck in continuous monthly debt cycles that can hamper near and long term financial goals.” He recommends speaking with a financial planner to ensure the best management of household spending. 

Rate Cut Talk Gathers Pace

More experts are joining the voices calling for a further cut in interest rates when the Bank of Canada announces its decision next month. The bank’s senior deputy governor Carolyn Wilkins said yesterday that “the economy still has room to grow” and that the bank’s monetary policy will “support the needed adjustments.” She said that the economy needs to adjust to the lower oil prices and that the bank doesn’t want to do anything that could stifle that. The labour market is one of the main areas of concern, especially with lay-offs in the energy sector, along with output and Ms. Wilkins believes that the gaps will close over time. She says that low and stable inflation will help boost investment and prompt the creation of more jobs. The Bank of Montreal’s senior economist Benjamin Reitzes says that we should “Look for another rate cut in March, and don’t count out further easing.” The rate decision will be announced on Mar. 4.