Recently, Bank of Canada (BoC) Governor Tiff Macklem a speech given in Mexico City was not merely a policy announcement, but effectively the Bank of Canada how to view the housing market and interest rates going forward it was an important speech that was revealed.
On the surface, "in an economic environment of increased uncertainty
Although they spoke of "flexible monetary policy," If you look inside, the link between the housing market and prices I will now seriously consider it. A powerful message was hidden within.
Interest Rate Cuts = Housing Price Stabilization?
If interest rates are lowered, many people.
I naturally think it is advantageous for home buyers. However, the central bank's perspective is different.
Although lowering interest rates appears to reduce the immediate burden of monthly payments, at the same time, housing demand is stimulated the likelihood of housing prices rising increases.
In other words, the central bank views interest rate cuts as a 'double-edged sword'.
While it may be a short-term lifeline for actual buyers, it is also viewed that it could actually be detrimental to the overall market.
Housing → "Key Variable" Shaking Prices
It becomes clear when you recall the pandemic era.
From early 2020 to early 2022 after the interest rate cut canadian housing prices have skyrocketed by a whopping 40%.
Current housing costs, consumer Price Index (CPI) as it accounts for about 28%, regarding rising prices housing costs are no longer a 'part' it has become a key variable that determines overall prices.
Supply Shortage: The Government's Share
Suppressing Demand: The Central Bank's Role
Canada has an influx of new people every year there are about twice as many as newly built houses.
Due to this structural imbalance a simple interest rate cut is bound to worsen the problem.
So expanding supply is the government's role, demand control is the role of the central bank.
By clarifying as going forward, central banks will prioritize solutions through interest rates over it seems highly likely that price stability will be prioritized through demand suppression.
- Interest rate news is important, but It is important to examine the government's supply policies
- Checking the income stream directly linked to employment stability and the ability to sustain housing prices this could be important information.
- Keep an eye on the rental market as high immigrant influx and supply shortages continue Rental demand is endless. If you are an investor, rental yield is better than capital gains, you can consider prioritizing it.
- Liquidity Management considering that the interest rate cut may be delayed, loan structure or cash flow tailored to the situation It is important to secure it in advance.
President McClemm's message this time is rather than simply conveying information the central bank's change in attitude toward the housing market it can be seen as an important signal.
Future interest rate cuts there is no guarantee that this will lead to housing market stability. Rather, in terms of price management interest rate cuts may be limited.
Actual buyers and investors now, let's break away from the mindset of looking only at interest rates. Supply, income, rental demand, etc. Focusing on fundamental factors it is time to look at the market.