The Latest in Mortgage News – All Eyes on the BoC

For those with a vested interest in mortgage rates—particularly variable-rate mortgage holders—tomorrow’s Bank of Canada rate decision has become one of the most-anticipated financial events of the quarter.

Expectations of a rate hike have seesawed from a near certainty to a coin toss and back to a sound bet. Markets are currently 92% priced in for a 0.25% increase to the Bank’s overnight target rate, which would bring it to 1.50%.

But there are arguments to be made both for and against a rate hike at this time. Here are two sides of the debate as featured in two recent articles:

The Case for a Rate Hike

A column in the Financial Post took the position that the Bank of Canada has a window of opportunity to move rates higher, which is in tune with Governor Stephen Poloz’s stated outlook for higher borrowing costs.

Despite employment plateauing and unemployment rising slightly to 6%, the author argues the economy is still stronger than it was in 2017 and unemployment is at a near 50-year low.

On the uncertainty thrown into the mix with escalating trade wars and difficult NAFTA renegotiations, the author wrote: “To be sure, Trump is less of a theoretical threat today than he was a year ago. But it’s also time to acknowledge that monetary policy can’t do everything…The central bank’s main job is to control inflation, which is currently on target. Its other main job is to oversee financial stability, which should be a worry after about a decade of ultra-low borrowing costs.”

The Case Against a Rate Hike

One of the biggest arguments against a rate hike now is the uncertainty posed by Canada’s trade war with the U.S., as outlined in this Globe and Mail column.

“Key will be whether the Trump administration follows through with its threat to punish auto imports, which would hit Canada, and Ontario in particular, hard, possibly driving the country into a recession,” the column notes. “Thus, the Bank of Canada could find itself in the position of having to cut rates down the road.”

The author also acknowledges the generally solid but “hardly exceptional” recent economic data and points to the improving but “still troubling” household debt situation.

The author notes the economy is still adjusting to the previous rounds of rate hikes, as well as the new mortgage qualification rules that took effect earlier this year, and quotes Paul Matsiras of Moody’s Analytics who thinks rates will actually be left unchanged this week.

“…it is still too early to judge the economy’s sensitivity to higher interest rates given the accumulation of household debt,” Matsiras is quoted. “Until a clearer picture emerges, the bank will remain cautious.”


In other news…

Has Toronto’s Housing Market Bottomed Out?

Real estate firm Royal LePage thinks so. That’s according to its quarterly House Price Survey released today, which expects house prices in the GTA to rise to 2.1% by the end of the third quarter.

Nationally, prices are expected to rise 1.9% in Q3. The forecast cites a growing labour market, positive economic fundamentals and housing supply shortages in some of the major cities.

“Based on our analysis, the [GTA] market has bottomed out,” Royal LePage CEO Phil Soper told the Financial Post.

Despite a spring homebuying season that “never blossomed,” Super said the market has begun to adjust to the new realities of OSFI’s mortgage stress test and is on track to post moderate growth over the quarter, despite the threat of higher interest rates and uncertainty due to NAFTA negotiations and mounting trade wars.

Here are some additional key findings:

  • Other key home price forecasts for Q3 include: Greater Vancouver (+1.5%); Greater Montreal (+1.8%); Ottawa (+2.2%); Calgary (+1.9%)
  • Home prices in the Greater Montreal Area have surpassed the national average for the first time in seven years


Canadian Housing Among World’s Most Extreme

Not only does Canada’s variation in weather classify as extreme, but now so too does its housing market.

That’s according to a Knight Frank study, as reported by the Globe and Mail, that found Canada ranks third in a list of countries with the widest gaps in home price changes among its cities.

The largest gap was between Quebec City’s year-over-year price decline of 0.4% and Vancouver’s increase of 15.4% (the data was prior to Vancouver’s home price declines), for a reading of 15.8 percentage points.

The only other countries with wider gaps were India, with a 27.1 percentage-point gap between price changes in Delhi and Surat, and Australia, with a 20.6 percentage-point gap between Darwin and Hobart.