BMO Economics is now predicting the central bank will hold interest rates until July 2013, which may be good news for brokers worried the market will enter the deep freeze because of new mortgage rule changes.
“If the rate stays down, market will be ok," said toronto broker Joe Walsh of The Mortgage Centre - Mortgage Professionals. "If rates move up over one per cent the market will slow noticeably.”
That won't likely happen this year, according to BMO, which revised its forecast, and is now suggesting the Bank of Canada will hold onto the current 1 per cent overnight rate until next summer.BMO economists had previously predicted a hold until January 2013.
That move, or absence of a move, would compensate for a predicted slowdown in buyer interest following the announcement of tighter mortgage rules, taking effect later this week.
Still, not everyone agrees. Darin Bauer, a broker with Mortgage Intelligence, says the market will slow regardless of low interest rates.
“I believe that the purchase market has topped out," he told MortgageBrokerNews.ca. "The next half of this year will be interesting to watch, especially with first time buyers who need insured mortgages.”
Whether it will help or not, BMO's senior economist Michael Gregory suggests the BoC will move later rather than sooner now.
The change is due to expected easing of monetary policy at the US Federal Reserve, a downgraded Canadian economic outlook and the recent move to tighten mortgage rules.
Gregory said the risks to financial stability posed by household debt, along with the closing output gap, were underpinning the Bank's tightening bias. "Changes to the government's mortgage insurance guidelines and housing-related lending guidelines should turn out to be more effective and efficient in dealing with these specific risks than the 'blunt instrument' of rate hikes - moves that are now likely at least another year away."