Robert McLister: Measly 0.25% reduction not enough for legions of sidelined homebuyers
So, when will rates drop enough to save borrowers’ wallets and keep home prices buoyant?
Since the dawn of inflation targeting, there have been five rate-cut cycles of at least 100 bps (in 2015, the Bank of Canada dropped only 50 bps). It’s an admittedly small sample, but in those instances, it took the central bank 3.2 months, on average, to ease 100 bps.
It’s worth noting that a widening gap between Canadian and U.S. rates, while harmful for our loonie, is not enough reason to stop easing. History has shown that the Bank of Canada’s policy rate can veer off on its own path for several months. Our overnight rate was 250 bps below the Federal Reserve’s in 1997, for example, albeit under different circumstances.
Now, by no means should anyone rely on history repeating and Canadians getting 100 bps of cuts by September. It can’t be totally ruled out, but inflation is still too unpredictable, as evidenced by last week’s disappointing uptick in consumer price index growth. Forward rate data from CanDeal DNA show markets expecting that it could take until April of next year for the next 75 bps of cuts. That’s like waiting for spring in a Winnipeg winter — it’s going to come, but not as soon as you’d like.
What’s the holdup on cuts?
Unfortunately, the economy needs to slow further to get the rate relief that so many people are praying for. That takes time. In fact, with all the hangover from fiscal stimulus, lingering wage pressures, global trade frictions, sticky services inflation, and so on, it could take longer this cycle.
That makes Friday’s Canadian and U.S. unemployment reports all the more pivotal. The Bank of Canada and the Fed want to see a looser labour market for reassurance that consumption and price pressures will ease. And so far, that seems to be happening. On our side of the border, total full-time employment appears to be peaking for the key 25 and over demographic. That’s despite Canada’s immigration levels being higher than Snoop Dogg at a house party.
Mortgage rates
The rates displayed below are updated by the end of each day and are sourced from the Canadian Mortgage Rate Survey produced by MortgageLogic.news. Postmedia and Imaginative. Online Inc., parent of MortgageLogic.news, are compensated by certain mortgage providers when you click on their links in the charts.