Bank of Canada delays rate hike

OTTAWA - The Bank of Canada held its overnight interest rate at 1% on Wednesday but dramatically revised its projections to say any hike would be further away than previously thought, because of excess capacity, soft inflation and stabilizing household debt.

“While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2%inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated,” said the central bank, led by Mark Carney.

Expect mortgage rates as well as lines of credit to remain low for the coming year at least.

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Rate Increase in 2013?

Speculation about the Bank of Canada’s interest rate policy is creeping back into the news again. There are suggestions the benchmark rate will be on its way up by the end of this year and the Central Bank isn’t doing anything to quell those notions.

The latest global outlook from one of Canada’s “Big-5” banks points to on-going improvements in the U.S. economy as the driving force behind an increase of interest rates by the end of 2013. The outlook forecasts an increase as much as a half-a-percent (50 basis-points) provided the Canadian economy maintains the growth it showed at the end of 2012.

The Bank of Canada’s Senior Deputy Governor Tiff Macklem reaffirmed the central bank’s desire to see rates increase during an appearance less than a week ago. Macklem, who’s pegged as the best bet to replace exiting BoC governor Mark Carney, said the Central Bank’s low interest rate strategy “is reaching its limits and rising levels of household indebtedness have created vulnerability.”

The Bank of Canada’s next interest rate announcement is set for January 23rd. It is expected to hold the rate at 1%.

No housing crash for Canada

Canada’s cooling housing market has made a soft landing with steady sales and pricing through the fall, providing further evidence of an expected gradual decrease rather than a U.S.-style housing market crash, according to a report released Tuesday.

“Canada’s national housing market is shifting toward a more sustainable path, though significant differences in regional conditions continue,” Adrienne Warren, Scotiabank’s senior economist, said in the report entitled Global Real Estate Trends.

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Is There Really a Housing Bubble?

Sagging home sales and flat ­prices have prompted speculation that the “housing bubble” might be about to burst — a prospect that immediately catches the attention of British Columbians.
But there is no housing bubble, according to Tsur Somerville, director of the University of B.C.’s Centre for Urban Economics in the Sauder School of Business.

“You can’t burst a bubble that wasn’t there,” said Somerville. “But you can have prices above where they should be and it not be a ­bubble.

For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”  None of those conditions appears imminent.

Somerville said it would take “some negative shock,” such as an ­economic meltdown or mortgage interest rates jumping from four per cent to nine or 10 per cent, to trigger lower prices.

“I don’t have a crystal ball but if I had to guess I would be more likely to guess this kind of lower sales/flat prices is more likely to continue.”

The B.C. Real Estate Association is more optimistic. Chief economist Cameron Muir is predicting increased sales in 2013 because of continuing low interest rates, population growth and more full-time jobs.  Employment growth in the ­Greater Vancouver area in the first ­seven months of the year, according to Muir, has been 3.5 to 4 per cent ­higher than the same period last year.

“I would expect to see sales pick up before the end of the year, at least on a seasonally adjusted basis,” Muir said.

Click here to read the complete article form the Vancouver Province.  

Market Update

There have been a couple of highlights for the Canadian housing market in the past week: the U.S. Federal Reserve announcement that it is committed to low interest rates until 2015 and the latest global housing outlook that puts this country in better shape than most. Anyone looking for a mortgage or a renewal will likely be heartened by the American central bank's interest rate pledge.

The commitment to low rates makes it harder, but not impossible, for the Bank of Canada to move on its desire to increase rates.  As for the global housing outlook, it shows Canadian prices continue to rise, albeit more slowly than a year ago. But around the world, countries showing price declines outnumbered gainers by more than two to one.

The Bank of Canada will maintain its rate

The Bank of Canada announced today it will maintain its overnight rate at 1% – while also hinting at the future withdrawal of that stimulus.

“In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy’s production potential,” writes the Central Bank in its rate review statement. “Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions.”

The current conditions, at least globally, don’t paint quite so rosy a picture. The bank points to “widespread slowing of activity across advanced and emerging economies,” a plodding US economy and a recession-rife Europe.
 These factors will continue to keep interest rates low which will allow Canadians to borrow money at record lows.  BoC is not expected to raise the overnight rate until 2013. 

Home prices to increase in 2013

Canada Mortgage and Housing Corporation is forecasting a stable housing market for British Columbia with light upticks in sales numbers, average prices and housing starts in 2013.

“Factors in 2013 driving the housing market are expected to be a little bit stronger,” Carol Frketich, B.C. regional economist for CMHC said. “There is expected to be a bit of a pick up in job growth next year, economic growth and demographic growth as well.”

Average prices, which are down about five per cent in Vancouver this year from last year, are expected to climb about 2.6 per cent by 2013, both in Vancouver and across B.C.

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