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22 Oct

Bank of Canada Rate Announcement & the Liberal Impact on Home Ownership

General

Posted by: Jeremy Langdon

No Rate Change from the Bank of Canada

 

The Bank of Canada will maintain its target for the overnight rate at 1/2%. In explaining its decision to keep its overnight rate at 0.5 per cent, the bank noted that inflation and economic activity was largely unfolding as predicted, even as low oil prices continue to weigh on the economy. 

It said the country’s economy is bouncing back from the technical recession that kicked off 2015.

The rebound, the bank added, is supported by the long-awaited “signs of strength” in non-resource sectors, thanks to solid growth in the United States. “Economic momentum is rebuilding,” the report said. 

DLC Chief Economist Dr. Sherry Cooper “I am not suggesting that mortgage rates will rise rapidly… I expect mortgage rates to edge up only gradually.” For excellent insight read Canadian Interest Rates have Bottomed and Housing has Peaked


The Liberal Effect on Home Ownership

Liberal leader Justin Trudeau has repeatedly pledged help for Canada’s middle class.

Here’s what he’s promised to do as Prime Minister of Canada as it relates to household balance sheets:

1. Balancing the budget is not a priority until 2019. Trudeau is expected to go on a spending spree suggesting a greater supply of government debt and potentially higher long-term yields to come, which could mean at slightly higher fixed mortgage rates than we’d otherwise see. 

2. No cut in Bank of Canada prime rate: More spending by Ottawa puts less pressure on governor Stephen Poloz to stimulate the economy with rate cuts. The implied probability of a rate hike by next October has almost doubled, from 8% yesterday to 15% as we speak. 3. Wider RRSP Access: The Liberals say they’ll open access to the RRSP Home Buyers’ Plan particularly for homebuyers coping with significant life changes (divorce, death of a spouse, a sick or elderly family member, etc.). More access to down payment funds will prop up housing sales and home ownership slightly, and support home prices. 

4. More “Affordability”: The Liberal platform includes a review of housing policy in high-priced markets. The new government will “consider all policy tools that could keep home ownership within reach.” What that means, we’ll have to wait and see. It could definitely be positive for renters and income property investors, given the Liberals have promised to “direct CMHC…to provide financing to support the construction” of new rental housing. 

5. First-timer Support: Trudeau’s government will add more flexible programs for first-time homebuyers. This could mean any number of things, potentially even higher amortization limits for new buyers.

 


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Chad