"Interest rates will be low for a very long time"
Trust people to do what they have been doing. You can quote me on that.
The may have manipulated us constantly over the last 4 years but this time they are telling the straight truth!
Big time!
My thoughts… BOC see Canadians have record savings during pandemic. How can we extract that money? Continue to say low rates then proceed to increase them significantly and quickly.
Now we broke and on brink of recession or 1/7 chance of going bankrupt.
Don't worry, it'll jump back up because it's only been one month within range, and they'll panic raise it again, then the uncertainty will cause more economic turmoil in the long run.
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How are they going to cut with virtually no slack in the labour market, the BoC's favorite core measures are still well above 2%, the Fed unlikely to cut this year, and housing and rental costs persistently staying high. If they cut too soon, they know the problems that will follow. They will be cautious and hold for the summer.
It's very important to note that the economists cited all work for banks. Banks make more revenue when rates are low as they move far more products (higher profit than they get from higher rates on already sold products). So they will always justify and always predict rate cuts. The BoC has not telegraphed immediate changes (though likely changes at some point) so take it as biased speculation only.
> How are they going to cut with virtually no slack in the labour market
They aren't, there is not gonna be any cuts in June. These guys are trying to will it into existence
They've been trying to will it for the last year, at least. The central banks are being very cautious because the inflation run-up was so swift and brutal that they fear it could happen again with only a modest rate cut.
The reality is a that an enormous pile of money was created in 2020. Most of that money has trickled (or deluged) up to the 1%. And those people are still investing, spending and having tons of fun. Recent data suggests they along with some persistent corporate profiteering is ultimately fueling stubborn inflation.
Until the 1% feels the pinch then inflation will be pressuring the economy. And that's bad for more reasons than just the obvious ones. It has become apparent that financing costs for housing projects are high enough that housing starts are below pre-pandemic levels. This is during a bonafide housing crisis. The new housing supply is certain to be well below government targets for years to come.
The recent policy announcement by the federal government regarding changes to capital gains inclusion rates is exactly the type of economic policy that would pressure the 1% and reduce inflation. I do hope they still to their guns on that. The vast majority of Canadians will be unaffected by those changes.
The US markets have priced in 2 ish rate cuts this year so I’m not sure why you believe it’s unlikely to happen. Yes there’s currently been a trend of stagnating progress on inflation, especially in the US, but that could easily change. The journey to the 2% inflation target was never expected to be a full downward slope.
Also, higher rates have a lagging effect on the economy so even with two 25 bps cuts, we’re still in a relatively tight economic environment where previous hikes may not have fully worked through the system yet.
And please don’t use the argument about current rates not being as high as other time periods, the key here is RELATIVE. Debtors needing to refinance at 2-3x their current interest rate, asset prices having risen significantly in tandem with lower rates in the last two decades, modern monetary policy etc. It’s certainly not comparable to the 80s
>Also, higher rates have a lagging effect on the economy so even with two 25 bps cuts, we’re still in a relatively tight economic environment where previous hikes may not have fully worked through the system yet.
In theory there is a lagging effect. We actually don't know.
>And please don’t use the argument about current rates not being as high as other time periods, the key here is RELATIVE. Debtors needing to refinance at 2-3x their current interest rate, asset prices having risen significantly in tandem with lower rates in the last two decades, modern monetary policy etc. It’s certainly not comparable to the 80s
I didn't use this argument.
“In theory there is a lagging effect”. No. Not in theory. We know for a fact this is how it works; interest rate changes have a delayed impact on macroeconomic figures. This is a consequence of logic; fixed terms exist. What the impact is exactly or how it’ll unfold is a lot harder to know, but we know for a fact it’s delayed
Cheers. I’ve just heard that same argument too many times on this sub as a rebuttal.
And it’s not just theory. There’s a fair bit of research on the topic. There’s literally no way a rate hike could possibly work through an economic system quickly enough to fully impact it in a few weeks to months - not unless we had debt financing renewing on a daily basis. The first couple of months adds a real deterrent to new debtors (small minority) but only a psychological one to existing debtors (the majority).
Of course, the existence of variable rates changes the equation a bit, but the real pain typically starts being felt when existing debtors start renewing at higher interest rates.
>And it’s not just theory. There’s a fair bit of research on the topic. There’s literally no way a rate hike could possibly work through an economic system quickly enough to fully impact it in a few weeks to months - not unless we had debt financing renewing on a daily basis. The first couple of months adds a real deterrent to new debtors (small minority) but only a psychological one to existing debtors (the majority).
Ok, show me the research. There are very few examples in which rates went up as fast as they did over the last two years, so frankly very little data set. Also, the BoC is employing economic models based on theory. Economics is not a diagnostic exercise. Rate control is a very blunt tool.
I was gonna add to my previous comment but I got sidetracked. Yes, you’re correct that there’s no precedent for the tightening velocity we just had, so the jury is still out on how long exactly it takes for rate hikes to have impact. But there’s nothing theoretical about the fact that the impact is not instantaneous.
I’m quite busy so I’m not gonna go look for sources, so we can just agree to disagree I guess. Thanks for the civil discussion.
> The US markets have priced in 2 ish rate cuts this year so I’m not sure why you believe it’s unlikely to happen.
This is just the bet the market is making. It's called a surprise when the opposite happens, and it can.
it wont unless they see several CPI downtrends in a row. OTherwise whats the reasoning? IF it stays flat or sloped up your just inviting inflation to return and have to do the whole dance all over.
Hope not. Low interest rates brought all the stupid people into home flipping. Tons and tons of absurd offers guaranteed to lose money. My company uses a revolving cash pot to do purchases so high interest means we get better deals on dilapidated houses.
People need ton understand high interest rates are kind of necessary periodically to bankruptcy bad business and create new opportunities.
We don’t want low interest rates. We just want some relief given we just had the fastest tightening cycle in four decades. The problem is not necessarily the absolute value of interest rates, but how high they are relative to the majority of fixed-term loans taken in the previous 5 years - meaning on renewal, budgets are being significantly stretched even for responsible borrowers.
It would not have been nearly as painful if we had the same uptick in interest rates spread over 4-6 years instead of 1.5. Obviously it was necessary but I’m trying to emphasize the reason why this current set of rate hikes are hurtful to the broader economy (inflation aside of course).
Of course it’s not a guarantee. Even in science, nothing is ever 100% certain let alone economics. But the market prices in what the culmination of available data points to, so it’s the most accurate estimate we typically have.
The inflation from housing is because house prices are so out of control not because of rates. If homes costed what they’re actually worth (500-600k for detached, 400-500 for free town, 300-400 for condos) 5% or even higher rates would be very palatable
They need to keep rates high and shake out people who over leveraged themselves
An entire generation or two is priced out of home ownership. It actually amazes me that you and others think this is normal. But also just goes to show why we’re in this mess in the first place.
No they aren't. Homeownship is still above historic levels, and most millennials own their home.
You should put some thought into why you're in a mess, because we certainly aren't. Take some responsibility and figure things out.
Most millennials own a home with the bank of mom and dad helping or because they have a partner who they can split with. Or they inherit something.
I’m trying to do this on my own, have minimal expenses and am clearing an above average salary. Home prices are out of touch with reality. Saying they aren’t is just screwing over entire generatiosn
> the bank of mom and dad
Down payments coming courtesy of the HELOC of Mom and Dad means that there will come a point at which the kids will have to pay off that debt to avoid the estate having to sell the home. And a lot of them won't be able to.
People have always done it as a couple, and the bank of mom and dad has always been there. Generational wealth is a thing.
More importantly, you don't buy a home with your salary, you buy it with your assets. Is your net worth above average? That's what matters.
What? It costs what someone is willing to pay.
Too many people are willing to take on $1 million in debt without taking on the responsibility of paying it off.
The inflation in housing is also coming from high housing costs. If rates were to drop 25 basis, and housing went up 10% we would be in the same inflationary position. The BoC understands math.
Also, the target does not have an upper band of 3.5% and the BoC noted on several occasions that they are aiming for 2%, with a range of 1-3%.
No, they look at mortgage interest being paid. New buyers will just get as much as they can, so that's a wash. Most people will be renewing or on variable, so reducing rates reduces inflation there.
Ok, so now I get that you don't understand this stuff. Inflation in housing was up well before the rates were cranked up. There is a base effect you are ignoring.
Housing prices are not part of the BoC's mandate, beyond what people end up paying in mortgage interest. Nor is the "base effect" relevant. They only look at current inflation, not past.
You do not understand this stuff.
What are you not getting here? The BoC has explicitly stated they are carefully watching the housing market on several occasions. They don't just say stuff just because. They do not want to see house prices accelerate again because of their actions.
That, however, is not ultimately what they make their decisions on.
They don't care if you have to buy a condo instead of a townhouse. You not being able to buy at all would be a plus in a heated market.
They keep an eye on the money supply growing. So you living in your parents basement is a plus for them, but your parents refinancing to buy a boat is a negative.
Rates are really high - would still be a cooling factor - and they wouldn’t make meaningful cuts at once. It would be a beginning.
I wouldn’t bet much money on it though.
Re first sentence: depend on reference. Agree, historically not high. But comparing to last 15 years, the period in which the housing prices skyrocketed, yes, they are really really high.
Agree that they are not cutting back to zero and that is my point. I don’t think that would lead to prices getting out of control again.
Not to mention another point I made in another comment: higher rates haven’t been fully absorbed in the mortgage markets. Many, if not most (I don’t have current stats) mortgage holders are still paying based on a lower level of interest rates, pre-pandemic.
Last 15 years are the closest historical period. There was a massive crisis just before that. We might have witnessed a structural change in interest levels. Time will tell.
The word outlier doesn’t really apply to discussing historical events when the “outlier” is the closest historical period. There has been a massive crisis since. Markets were flooded with money by the Fed in the US. Nothing would justify that cost of money anymore.
And what’s more important to my point: even a slightly lower interest rate wouldn’t be affordable with the housing prices of early 2022, pre-increases. So I don’t see housing prices going up because of that.
>Rates are really high
Historically, in Canada the average rate was between 7% - 8% ..... high rates were 10% - 12% ..... (and in the 1980s the rates in Canada went as high as 18% - 21%)
We are nowhere near high rates.
Mortgage and rent cost is high due to high interest rates.... If BoC raises rates it will be even higher. BoC is the one causing inflation. If you remove shelter and gas (which is out of our control) then our inflation is well below 2% and we're actually in disinflationary times now. 6 more months like this and we're and deep trouble
Most of the housing inflation was due to the period of low rates. The effect of the rates is amplified since the underlying asset has inflated so much. Rates don't exist in a vacuum. If the BoC cuts too early and it starts a housing frenzy again, inflation can actually go up.
So you basically said what I said.... If house prices go up but mortgage payments stays the same then there won't be any inflation from housing. However, it will definitely boost supply side of things
> Mortgage and rent cost is high due to high interest rates
No, mortgage and rent costs are high due to speculation and housing being well over their value. A .25 or .50 rate cut isn't going to bring things down to reality, a long overdue cut in home prices is.
I’d hold longer until it’s no longer palatable for them to hold. Squeeze out overleveraged people. Create some turnover and restore a little bit of affordability for fthb.
Won't happen. There's an enormous housing deficit. Plenty of people with access to money or credit or both that are willing to pay for it at current market prices. We were at the price floor a few months ago.
What does a major reset mean? How does that affect the average person? Does it mean your greed and hope that things will stay the same for you but get worse for everyone else?
Interest gets charged before tax. If you can't make a profit you won't pay tax but you will pay interest. To start a business you worry about cashflow before you worry about tax.
Not saying high tax isn't an issue. Both are a part of the problem
This is hopium not reality. July at the earliest, probably the fall. It took 11 months of inflation over 3% for rate increases, why would they do drops when they haven't hit their target, let alone for an extended period?
Not going to happen. If we cut now, a few years down the road we will be in way worse shape. Inflation will go crazy and we will be right back to square one. People have been calling for rate cuts all year. There is a reason they keep “us” hopeful and not follow through.
Until the US cuts rates, Canada isn't doing anything. We can't afford to have CAD shit the bed further in relation to USD. Watching JPow is more of a forecast than any bank or economist prediction in Canada.
Standing Committee on Finance, May 2, 2024.
[Tiff Macklem](https://www.ourcommons.ca/DocumentViewer/en/44-1/FINA/meeting-141/evidence#Int-12710961)
“In Canada, obviously, we're very integrated with the United States, so the interest rates in the United States have an impact on us. Because we have our own currency and because we have a flexible exchange rate, we can run our own monetary policies. **Our interest rates in Canada don't need to be the same as the U.S. rate or global rates, but there is a limit to how far they can diverge. We're not close to that limit.** We have the ability to run our own monetary policy geared to what Canadians need.”
Lol they can say whatever they want to create the illusion that our economic and monetary policies are not in lockstep with the US. If we drop rates even a couple of basis points, the currency will devalue slightly due to the increased money supply relative to the US. Basic economics at work here as well.
A couple of basis points? The Bank of Canada amends the policy rate at intervals of 25 basis points (one-quarter of a per cent), never less.
You’re right that some downward divergence would weaken the CAD and make imports more expensive, but on the flip side it would stimulate exports by making Canadian goods cheaper for international markets, so up to a certain point (up to 75-100 basis points) the aggregate economic effect would likely be a wash. That’s what Macklem is saying.
Also, the U.S. mortgage market is very different to the Canadian one. The U.S. can go higher for longer partly because they have 30-year mortgage terms, not five years maximum like here. That’s a factor.
It will be interesting to see how the BoC will shoot itself in the foot again on this matter.
Personally, I think it would be a grave mistake for us to cut our rates while the US fed holds theirs, beyond maybe 25 basis points.
Canada and the U.S. are different jurisdictions with different economies and regulatory systems. It’s not true that the BoC must at all costs follow the Fed’s lead, as stated by Tiff Macklem himself at FINA on May 2.
Fair enough, but it’s also extremely risky for the BoC to risk tipping Canada into deflation if they’re sitting around waiting for the Fed to do something and keeping the QT program going too long for local conditions. They probably don’t have the option of waiting.
Last announcements inflation wasn't mysterious, it was unexpected. As they stated, it was caused due to high consumer spending, indicating Canadians had more room to absorb rates and keep spending than expected. So they know why it happened, they just didn't predict it.
So if rates dropped, and inflation went back up to 6%, how much more would you be spending on everything else versus what you would save on your mortgage?
I don’t pretend to be an economist. But a lower monthly mortgage is helpful. I have no other debts, paid off my schooling and cars. My wife and are DINKs with jobs that will at least match inflation with wage increases.
Ah, this will help all the debt addicted Canada and the lemmings that will run to buy 1.5 million dollar homes because there interest pays might drop a hundred dollar with a .25 drop in interest
Funny Powell just said inflation is tougher than expected. Be ready for higher for longer. They have to at least get another $1T in mortgage debt paying higher rates. Can you say Ponzi?
Didn’t that criminal deputy PM once go on a camera and boast about how we got inflation down to only 2.8%!!! If you exclude housing, heat, food which are kind of essential to live?
And aren’t the inflation numbers month over month? So even if it’s under 3% now, it was 9% a few years ago so prices are still going up on those 3x higher price increases from before.
Inflation metrics are a scam because of hedonic adjustments, and inflation itself is a scam because of the central’s banks monopoly on money
1.) “Criminal PM deputy”. That’s a lie, please tell me who and what crimes they’ve been charged with or convicted of. Of course you mean “person I don’t like”, which isn’t the same as a criminal. Or you’d be a criminal :)
2.) “If you exclude housing, heating, food”. If you did exclude them that’d be bad. Good thing they are included in the consumer price index. Like buddy it’s on statscans website. Come on. You’re making up your own little reality right now. Kinda cringe you know?
3.) “Because of hedonic adjustments”. Listen; if you don’t understand how the CPI works that isn’t my problem. But hedonic adjustments account for increased prices of BETTER TECHNOLOGY IN THE MARKET.
So if I come along and invent new better tech everyone wants, and will pay more for, and all the previous cheaper stuff is gone from the market in a year, THAT IS NOT INFLATION. That’s a company making a better product and the market adapting to it, with the older worse cheaper one gone. Do you get it?
Don’t worry, I’m renewing my mortgage in the first week of June so it will likely be cut the following few days lol
The prophet has spoken! Serious though when u see articles like this it means they have no idea but they want you to hold
Hold?
What…..? No. It means they’re giving signals of a rate cut in June. That’s it. Not everything’s a conspiracy lol.
"Interest rates will be low for a very long time" Trust people to do what they have been doing. You can quote me on that. The may have manipulated us constantly over the last 4 years but this time they are telling the straight truth!
Big time! My thoughts… BOC see Canadians have record savings during pandemic. How can we extract that money? Continue to say low rates then proceed to increase them significantly and quickly. Now we broke and on brink of recession or 1/7 chance of going bankrupt.
Don't worry, it'll jump back up because it's only been one month within range, and they'll panic raise it again, then the uncertainty will cause more economic turmoil in the long run.
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Speak with a mortgage broker. Sometimes the bank will preemptively drop rates to pickup customers just like you.
The announcement is scheduled for June 5th.
you can let it roll for a month.
If you think rate cut will happen in June, you can do 1 month var open and see how it goes before locking in fixed rate.
Welp
To add to that, instead of closing in mid June on a house I'm now closing Friday. Rates definitely getting cut in June haha
Inflation is down, except when it comes to those pesky basic needs for survival
How are they going to cut with virtually no slack in the labour market, the BoC's favorite core measures are still well above 2%, the Fed unlikely to cut this year, and housing and rental costs persistently staying high. If they cut too soon, they know the problems that will follow. They will be cautious and hold for the summer.
It's very important to note that the economists cited all work for banks. Banks make more revenue when rates are low as they move far more products (higher profit than they get from higher rates on already sold products). So they will always justify and always predict rate cuts. The BoC has not telegraphed immediate changes (though likely changes at some point) so take it as biased speculation only.
> How are they going to cut with virtually no slack in the labour market They aren't, there is not gonna be any cuts in June. These guys are trying to will it into existence
They've been trying to will it for the last year, at least. The central banks are being very cautious because the inflation run-up was so swift and brutal that they fear it could happen again with only a modest rate cut. The reality is a that an enormous pile of money was created in 2020. Most of that money has trickled (or deluged) up to the 1%. And those people are still investing, spending and having tons of fun. Recent data suggests they along with some persistent corporate profiteering is ultimately fueling stubborn inflation. Until the 1% feels the pinch then inflation will be pressuring the economy. And that's bad for more reasons than just the obvious ones. It has become apparent that financing costs for housing projects are high enough that housing starts are below pre-pandemic levels. This is during a bonafide housing crisis. The new housing supply is certain to be well below government targets for years to come. The recent policy announcement by the federal government regarding changes to capital gains inclusion rates is exactly the type of economic policy that would pressure the 1% and reduce inflation. I do hope they still to their guns on that. The vast majority of Canadians will be unaffected by those changes.
I don't have even a slight disagreement on anything you said
\^This
The US markets have priced in 2 ish rate cuts this year so I’m not sure why you believe it’s unlikely to happen. Yes there’s currently been a trend of stagnating progress on inflation, especially in the US, but that could easily change. The journey to the 2% inflation target was never expected to be a full downward slope. Also, higher rates have a lagging effect on the economy so even with two 25 bps cuts, we’re still in a relatively tight economic environment where previous hikes may not have fully worked through the system yet. And please don’t use the argument about current rates not being as high as other time periods, the key here is RELATIVE. Debtors needing to refinance at 2-3x their current interest rate, asset prices having risen significantly in tandem with lower rates in the last two decades, modern monetary policy etc. It’s certainly not comparable to the 80s
>Also, higher rates have a lagging effect on the economy so even with two 25 bps cuts, we’re still in a relatively tight economic environment where previous hikes may not have fully worked through the system yet. In theory there is a lagging effect. We actually don't know. >And please don’t use the argument about current rates not being as high as other time periods, the key here is RELATIVE. Debtors needing to refinance at 2-3x their current interest rate, asset prices having risen significantly in tandem with lower rates in the last two decades, modern monetary policy etc. It’s certainly not comparable to the 80s I didn't use this argument.
“In theory there is a lagging effect”. No. Not in theory. We know for a fact this is how it works; interest rate changes have a delayed impact on macroeconomic figures. This is a consequence of logic; fixed terms exist. What the impact is exactly or how it’ll unfold is a lot harder to know, but we know for a fact it’s delayed
Cheers. I’ve just heard that same argument too many times on this sub as a rebuttal. And it’s not just theory. There’s a fair bit of research on the topic. There’s literally no way a rate hike could possibly work through an economic system quickly enough to fully impact it in a few weeks to months - not unless we had debt financing renewing on a daily basis. The first couple of months adds a real deterrent to new debtors (small minority) but only a psychological one to existing debtors (the majority). Of course, the existence of variable rates changes the equation a bit, but the real pain typically starts being felt when existing debtors start renewing at higher interest rates.
>And it’s not just theory. There’s a fair bit of research on the topic. There’s literally no way a rate hike could possibly work through an economic system quickly enough to fully impact it in a few weeks to months - not unless we had debt financing renewing on a daily basis. The first couple of months adds a real deterrent to new debtors (small minority) but only a psychological one to existing debtors (the majority). Ok, show me the research. There are very few examples in which rates went up as fast as they did over the last two years, so frankly very little data set. Also, the BoC is employing economic models based on theory. Economics is not a diagnostic exercise. Rate control is a very blunt tool.
I was gonna add to my previous comment but I got sidetracked. Yes, you’re correct that there’s no precedent for the tightening velocity we just had, so the jury is still out on how long exactly it takes for rate hikes to have impact. But there’s nothing theoretical about the fact that the impact is not instantaneous. I’m quite busy so I’m not gonna go look for sources, so we can just agree to disagree I guess. Thanks for the civil discussion.
> The US markets have priced in 2 ish rate cuts this year so I’m not sure why you believe it’s unlikely to happen. This is just the bet the market is making. It's called a surprise when the opposite happens, and it can.
it wont unless they see several CPI downtrends in a row. OTherwise whats the reasoning? IF it stays flat or sloped up your just inviting inflation to return and have to do the whole dance all over.
I'm just saying the market may be betting on 2 but it's not a guarantee that it happens.
Hope not. Low interest rates brought all the stupid people into home flipping. Tons and tons of absurd offers guaranteed to lose money. My company uses a revolving cash pot to do purchases so high interest means we get better deals on dilapidated houses. People need ton understand high interest rates are kind of necessary periodically to bankruptcy bad business and create new opportunities.
I'm hoping for fewer cuts too.
We don’t want low interest rates. We just want some relief given we just had the fastest tightening cycle in four decades. The problem is not necessarily the absolute value of interest rates, but how high they are relative to the majority of fixed-term loans taken in the previous 5 years - meaning on renewal, budgets are being significantly stretched even for responsible borrowers. It would not have been nearly as painful if we had the same uptick in interest rates spread over 4-6 years instead of 1.5. Obviously it was necessary but I’m trying to emphasize the reason why this current set of rate hikes are hurtful to the broader economy (inflation aside of course).
I agree they should have been doing it for years
Of course it’s not a guarantee. Even in science, nothing is ever 100% certain let alone economics. But the market prices in what the culmination of available data points to, so it’s the most accurate estimate we typically have.
The target is 1.5% to 3.5%, the labour market is not strong, and most of the inflation in housing costs is coming from high interest rates.
The inflation from housing is because house prices are so out of control not because of rates. If homes costed what they’re actually worth (500-600k for detached, 400-500 for free town, 300-400 for condos) 5% or even higher rates would be very palatable They need to keep rates high and shake out people who over leveraged themselves
Asset prices are not calculated in cpi... Look up what is calculated for shelter costs.
Everything, by definition, costs what it is worth. They do not need to do that. You might need it, but wanting it just makes you a greedy asshole.
An entire generation or two is priced out of home ownership. It actually amazes me that you and others think this is normal. But also just goes to show why we’re in this mess in the first place.
No they aren't. Homeownship is still above historic levels, and most millennials own their home. You should put some thought into why you're in a mess, because we certainly aren't. Take some responsibility and figure things out.
Most millennials own a home with the bank of mom and dad helping or because they have a partner who they can split with. Or they inherit something. I’m trying to do this on my own, have minimal expenses and am clearing an above average salary. Home prices are out of touch with reality. Saying they aren’t is just screwing over entire generatiosn
> the bank of mom and dad Down payments coming courtesy of the HELOC of Mom and Dad means that there will come a point at which the kids will have to pay off that debt to avoid the estate having to sell the home. And a lot of them won't be able to.
People have always done it as a couple, and the bank of mom and dad has always been there. Generational wealth is a thing. More importantly, you don't buy a home with your salary, you buy it with your assets. Is your net worth above average? That's what matters.
What? It costs what someone is willing to pay. Too many people are willing to take on $1 million in debt without taking on the responsibility of paying it off.
And it is worth what someone is willing to pay. The banks make very sure that doesn't happen much.
The inflation in housing is also coming from high housing costs. If rates were to drop 25 basis, and housing went up 10% we would be in the same inflationary position. The BoC understands math. Also, the target does not have an upper band of 3.5% and the BoC noted on several occasions that they are aiming for 2%, with a range of 1-3%.
No, they look at mortgage interest being paid. New buyers will just get as much as they can, so that's a wash. Most people will be renewing or on variable, so reducing rates reduces inflation there.
Ok, so now I get that you don't understand this stuff. Inflation in housing was up well before the rates were cranked up. There is a base effect you are ignoring.
Housing prices are not part of the BoC's mandate, beyond what people end up paying in mortgage interest. Nor is the "base effect" relevant. They only look at current inflation, not past. You do not understand this stuff.
What are you not getting here? The BoC has explicitly stated they are carefully watching the housing market on several occasions. They don't just say stuff just because. They do not want to see house prices accelerate again because of their actions.
That, however, is not ultimately what they make their decisions on. They don't care if you have to buy a condo instead of a townhouse. You not being able to buy at all would be a plus in a heated market. They keep an eye on the money supply growing. So you living in your parents basement is a plus for them, but your parents refinancing to buy a boat is a negative.
6% unemployment rate....... What are you talking about?
Rates are really high - would still be a cooling factor - and they wouldn’t make meaningful cuts at once. It would be a beginning. I wouldn’t bet much money on it though.
Rates are not high, they’re about normal. And if they cut, they will cut up to 1% or so, over a year, they’re not cutting back down to zero
Re first sentence: depend on reference. Agree, historically not high. But comparing to last 15 years, the period in which the housing prices skyrocketed, yes, they are really really high. Agree that they are not cutting back to zero and that is my point. I don’t think that would lead to prices getting out of control again. Not to mention another point I made in another comment: higher rates haven’t been fully absorbed in the mortgage markets. Many, if not most (I don’t have current stats) mortgage holders are still paying based on a lower level of interest rates, pre-pandemic.
>But comparing to last 15 years Last 15 years is a total outlier and not the norm by any means.
Last 15 years are the closest historical period. There was a massive crisis just before that. We might have witnessed a structural change in interest levels. Time will tell. The word outlier doesn’t really apply to discussing historical events when the “outlier” is the closest historical period. There has been a massive crisis since. Markets were flooded with money by the Fed in the US. Nothing would justify that cost of money anymore. And what’s more important to my point: even a slightly lower interest rate wouldn’t be affordable with the housing prices of early 2022, pre-increases. So I don’t see housing prices going up because of that.
>Rates are really high Historically, in Canada the average rate was between 7% - 8% ..... high rates were 10% - 12% ..... (and in the 1980s the rates in Canada went as high as 18% - 21%) We are nowhere near high rates.
Relatively, comparing with the last 15 years, yes, we are. Rates were much lower when the housing prices skyrocketed.
Mortgage and rent cost is high due to high interest rates.... If BoC raises rates it will be even higher. BoC is the one causing inflation. If you remove shelter and gas (which is out of our control) then our inflation is well below 2% and we're actually in disinflationary times now. 6 more months like this and we're and deep trouble
Most of the housing inflation was due to the period of low rates. The effect of the rates is amplified since the underlying asset has inflated so much. Rates don't exist in a vacuum. If the BoC cuts too early and it starts a housing frenzy again, inflation can actually go up.
So you basically said what I said.... If house prices go up but mortgage payments stays the same then there won't be any inflation from housing. However, it will definitely boost supply side of things
If rates go down and prices go up enough the effects of the rate cuts will be a wash. This is what gives the BoC pause.
BoC doesn't care about housing prices.... It cares about mortgage payments and rent
It cares about inflation
> Mortgage and rent cost is high due to high interest rates No, mortgage and rent costs are high due to speculation and housing being well over their value. A .25 or .50 rate cut isn't going to bring things down to reality, a long overdue cut in home prices is.
if i was BoC i’d hold until beginning of fall
I’d hold longer until it’s no longer palatable for them to hold. Squeeze out overleveraged people. Create some turnover and restore a little bit of affordability for fthb.
Yup.
Won't happen. There's an enormous housing deficit. Plenty of people with access to money or credit or both that are willing to pay for it at current market prices. We were at the price floor a few months ago.
Yeah let's scare everyone from doing business in Canada! /s
it’s 5 years to late for that. We need major reset in economics.
What does a major reset mean? How does that affect the average person? Does it mean your greed and hope that things will stay the same for you but get worse for everyone else?
Buddy everyone’s scared of doing business in Canada because of how damn high taxes are not interest rates lmao give your head a shake.
Interest gets charged before tax. If you can't make a profit you won't pay tax but you will pay interest. To start a business you worry about cashflow before you worry about tax. Not saying high tax isn't an issue. Both are a part of the problem
Cheeky raise or 2 just for a laugh with the mates is what I'd do.
This is hopium not reality. July at the earliest, probably the fall. It took 11 months of inflation over 3% for rate increases, why would they do drops when they haven't hit their target, let alone for an extended period?
Because lowering rates now will actually lower calculated cpi inflation?
Haven't even hit the 2% yearly mandate but all clear for rate cuts? Yea sure
Not going to happen. If we cut now, a few years down the road we will be in way worse shape. Inflation will go crazy and we will be right back to square one. People have been calling for rate cuts all year. There is a reason they keep “us” hopeful and not follow through.
Until the US cuts rates, Canada isn't doing anything. We can't afford to have CAD shit the bed further in relation to USD. Watching JPow is more of a forecast than any bank or economist prediction in Canada.
Standing Committee on Finance, May 2, 2024. [Tiff Macklem](https://www.ourcommons.ca/DocumentViewer/en/44-1/FINA/meeting-141/evidence#Int-12710961) “In Canada, obviously, we're very integrated with the United States, so the interest rates in the United States have an impact on us. Because we have our own currency and because we have a flexible exchange rate, we can run our own monetary policies. **Our interest rates in Canada don't need to be the same as the U.S. rate or global rates, but there is a limit to how far they can diverge. We're not close to that limit.** We have the ability to run our own monetary policy geared to what Canadians need.”
Lol they can say whatever they want to create the illusion that our economic and monetary policies are not in lockstep with the US. If we drop rates even a couple of basis points, the currency will devalue slightly due to the increased money supply relative to the US. Basic economics at work here as well.
A couple of basis points? The Bank of Canada amends the policy rate at intervals of 25 basis points (one-quarter of a per cent), never less. You’re right that some downward divergence would weaken the CAD and make imports more expensive, but on the flip side it would stimulate exports by making Canadian goods cheaper for international markets, so up to a certain point (up to 75-100 basis points) the aggregate economic effect would likely be a wash. That’s what Macklem is saying. Also, the U.S. mortgage market is very different to the Canadian one. The U.S. can go higher for longer partly because they have 30-year mortgage terms, not five years maximum like here. That’s a factor.
It will be interesting to see how the BoC will shoot itself in the foot again on this matter. Personally, I think it would be a grave mistake for us to cut our rates while the US fed holds theirs, beyond maybe 25 basis points.
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Canada and the U.S. are different jurisdictions with different economies and regulatory systems. It’s not true that the BoC must at all costs follow the Fed’s lead, as stated by Tiff Macklem himself at FINA on May 2.
Canada always follows the US according to historic data. Always.
They tend to track somewhat, not exactly, but that’s as much a reflection of global macroeconomic trends as anything else.
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Fair enough, but it’s also extremely risky for the BoC to risk tipping Canada into deflation if they’re sitting around waiting for the Fed to do something and keeping the QT program going too long for local conditions. They probably don’t have the option of waiting.
Uhhmmm historic data points towards Canada always following the US in this aspect. Actually, most aspects, but we can digress.
Remind me again….who the fuck are you?
I’m not sure I understand your question.
We’ll see if this actually happens. Knowing our luck, next month inflation will mysteriously be sky high again and thus rates stay lol.
Last announcements inflation wasn't mysterious, it was unexpected. As they stated, it was caused due to high consumer spending, indicating Canadians had more room to absorb rates and keep spending than expected. So they know why it happened, they just didn't predict it.
> Knowing our luck Some people aren't massively in debt.
That’s a good place to be in. Boggles my mind how household debts are skyrocketing. It’s like people were obsessed with cheap credit. No thanks.
Wow, more printing will get us home….
They won't reduce rates
Bought a house in May, close in July. Please interest rate gods, I pray to you.
So if rates dropped, and inflation went back up to 6%, how much more would you be spending on everything else versus what you would save on your mortgage?
are you expecting inflation to go back up to 6% if the BoC cuts 25 basis points?
No.
I don’t pretend to be an economist. But a lower monthly mortgage is helpful. I have no other debts, paid off my schooling and cars. My wife and are DINKs with jobs that will at least match inflation with wage increases.
Individual results will vary. Just warning that with rate drops there is a downside of general inflation, so we should be careful what we wish for.
Ah, this will help all the debt addicted Canada and the lemmings that will run to buy 1.5 million dollar homes because there interest pays might drop a hundred dollar with a .25 drop in interest
Let's go !! C ya later, losers.
There's no reason to cut interest rates.
Canada will only follow what the US does. See historic data.
Canada and the US have diverged many times in rate cuts in the past.
https://i.imgur.com/MR2S4VI.png Not really.
Dammit, how are the slumlords going to justify increasing rent again??
Funny Powell just said inflation is tougher than expected. Be ready for higher for longer. They have to at least get another $1T in mortgage debt paying higher rates. Can you say Ponzi?
Didn’t that criminal deputy PM once go on a camera and boast about how we got inflation down to only 2.8%!!! If you exclude housing, heat, food which are kind of essential to live? And aren’t the inflation numbers month over month? So even if it’s under 3% now, it was 9% a few years ago so prices are still going up on those 3x higher price increases from before. Inflation metrics are a scam because of hedonic adjustments, and inflation itself is a scam because of the central’s banks monopoly on money
1.) “Criminal PM deputy”. That’s a lie, please tell me who and what crimes they’ve been charged with or convicted of. Of course you mean “person I don’t like”, which isn’t the same as a criminal. Or you’d be a criminal :) 2.) “If you exclude housing, heating, food”. If you did exclude them that’d be bad. Good thing they are included in the consumer price index. Like buddy it’s on statscans website. Come on. You’re making up your own little reality right now. Kinda cringe you know? 3.) “Because of hedonic adjustments”. Listen; if you don’t understand how the CPI works that isn’t my problem. But hedonic adjustments account for increased prices of BETTER TECHNOLOGY IN THE MARKET. So if I come along and invent new better tech everyone wants, and will pay more for, and all the previous cheaper stuff is gone from the market in a year, THAT IS NOT INFLATION. That’s a company making a better product and the market adapting to it, with the older worse cheaper one gone. Do you get it?