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Fixed mortgage rates could fall further

Latest in Mortgage News: Why the Fed Cut Rates this Week

The big news of the week was the Federal Reserve’s interest rate cut, the first one since the financial crisis more than 10 years ago.

Despite a strong domestic economy, Federal Reserve Chairman Jerome Powell said the cut was a pre-emptive move to brace against “downside risks.”

“We’re thinking of it essentially as a mid-cycle adjustment to policy,” he said, adding “there really is no reason why the (economic) expansion can’t keep going.”

The rate move came at a time of increasing concern over global growth, escalating trade wars and low inflation.

Economists at RBC noted that the cut was fully priced into the market, yet “disappointed some market participants looking for a larger reduction (market pricing showed non-trivial odds of a 50-bp cut),” wrote Josh Nye, senior economist at RBC Economics Research, adding that recent data didn’t “make a clear argument for any easing.”

New Tariffs Could Drive Down Rates Further

On Thursday, President Donald Trump made a surprise announcement that the U.S. would impose additional tariffs on $300 billion of Chinese imports starting Sept. 1. That has fuelled expectations for additional rate cuts by year’s end.

“Today’s announcement increases the risk that the Fed cuts rates by more than 75 (basis points) in total this year,” Deutsche Bank’s senior U.S. economist, Brett Ryan, wrote in a research note.

While the Bank of Canada could have continued in its rate-hold pattern with one U.S. rate cut, experts say more than two rate moves south of the border could apply unwanted upward pressure to the Canadian dollar and force the BoC to follow suit.

“For the time being the Bank of Canada is decidedly on hold,” CIBC chief economist Avery Shenfeld told CTV News. “(But) eventually the Bank of Canada could be dragged into a rate cut, but the timing of that is probably not until 2020.”

And in other news…

Housing Costs on the Minds of Canadians

Nearly a third of young Canadians (32%) admit they have fears over rising housing and living costs.

A poll commissioned by CBC News found housing and living costs are by far the top issues facing Canadians, followed by climate change in a distant second (19%), the health of themselves and their family members (10%) and immigration (8%).

Concern about the high cost of living ranked as the top worry for every segment of Canadians polled, including Indigenous Canadians, new Canadians, first-time voters and visible minorities.

The poll found one in 10 Canadians say they’re not getting by financially, while another 68% say they “have to think about how they spend money.”

Torontonians Moving Less

With fewer housing options available, Torontonians are moving far less compared to a decade ago, a new study has found.

The rate of mobility in 2016 was down 6.3% compared to 2006, according to the Ryerson University study. For Toronto-area homeowners specifically, their rate of moves fell 7.6%, while moves among tenants were down 3.9%.

Co-author Frank Clayton said people are staying put largely due to the short supply of new detached, semi-detached and townhomes.

In Calgary and Vancouver, the rate of moves were down 5.7% and 3.8%, respectively.

Mortgage Growth Rises from Multi-Year Lows

Canadian mortgage credit growth picked up in June after hitting multi-year lows in recent months, Bank of Canada data shows.

Mortgage credit growth was up 5.2% from May. Mortgage lending growth in year-on-year terms also posted a marked acceleration, “which had not been observed in this magnitude since early-2017,” Scotiabank economists wrote in a research note. They added that the recent decrease in the mortgage qualifying rate (stress-test rate) should “slightly benefit mortgage lending going forward.”

Borrowing from nonbank institutions was up 6% compared to last year, while chartered bank lending was up 3.5%.