Recent BoC Interest Rate Hike – What does it mean?

With the recent announcement that the Bank of Canada is raising its interest rates, I have had several clients, and former clients ask me questions regarding the current slowing market, and what it means to new buyers, homeowners, and sellers alike.

In a recent article by Dr. Sherry Cooper of Dominion Lending Centres, she articulately explains the market implications, as well as the key factors that both lead to the change, and also future market predictions. Most importantly, she explains what it means for you.

“…For the first time in seven years, the Bank of Canada announced… that it was hiking its key overnight rate by a quarter percentage point (25 basis points) bringing it to 0.75 percent as the economy has staged a broadly based economic expansion this year. In a break from tradition, the Bank has taken this action even though inflation remains well below its target rate of 2 percent…”

“…Last Friday’s continued strong employment report for June cinched the rate-hike. Employment rose a hefty 45,300, lifting the 12-month gain to a whopping 350,000 and trimming the jobless rate to match the cycle low of 6.5%. What’s more, total hours worked surged in the second quarter at the fastest rate since 2003…”

“…Markets have been expecting this move for some time, as monetary policymakers have publicly stated that the 2015 interest-rate cuts appear to have done their job. Governor Stephen Poloz has said that the Canadian economy enjoyed “surprisingly” strong growth in the first three months of this year and that he expects the growth pace to remain above potential (estimated at 1-3/4 percent), setting the stage for this rate hike…”

“…Housing is one crucial component of the Canadian economy, and it has slowed meaningfully at the national level, in line with the central bank’s expectations. Prices and sales have declined in the Greater Toronto Area and surrounding municipalities since the Ontario Fair Housing Plan announcement in late April. However, housing activity has gained momentum in Montreal and Ottawa, while Alberta stabilizes and Vancouver posted a modest bounceback from the swoon following its August 2016 imposition of a foreign buyers’ tax. The underlying strength in many housing markets is the reason why policymakers are proposing new rules to tighten mortgage lending…”

To read the entire article, and we suggest that you do, please click here.

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