BoC: Residential investment's share of economy to decline

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Real estate investment as a proportion of the overall economy can only go one way, says the Bank of Canada's latest Monetary Policy Report.

“Residential investment is expected to remain relatively unchanged as its share of the overall economy declines to a more sustainable level,” the Bank of Canada’s April Monetary Policy Report, released Wednesday, states. “The profile for household spending is consistent with credit growth remaining well below the historical average and a stabilization of household debt-to-income ratios over the projection horizon.”

Canada’s GDP is expected to grow 2.5 per cent in 2014 and 2015 before settling at two per cent in 2016 and the housing market is expected to continue its recovery thanks to tighter lending rules that especially effect first-time home buyers.

“A strong recovery in the housing market is also anticipated to continue, albeit at a slightly slower pace than projected in January, as tight mortgage-lending standards and difficult labour market conditions for younger workers dampen household formation,” the policy states.

However, low inflation continues to worry the Bank of Canada.

“With underlying inflation expected to remain below target for some time, the downside risks to inflation remain important,” an official release from the Bank of Canada states. “At the same time, the risks associated with household imbalances remain elevated.”

The BoC also released its overnight rate target which, unsurprisingly, will be held at one per cent as the economy continues to recover.

“Recent developments are in line with the Bank’s expectation of a soft landing in the housing market and stabilizing debt-to-income ratios for households,” the release states. “Still, household imbalances remain elevated and would pose a significant risk should economic conditions deteriorate.”
 
  • Angela Wong-Liao - Invis Inc on 2014-04-16 11:17:56 AM

    I am glad that the BoC overnight rate remaining at 1%, which means interest rate will remain flat for a longer while. However, tight mortgage lending and difficult labour market conditions for younger workers does negatively affected the real estate market.

  • Glen on 2014-04-16 11:28:22 AM

    LOL from a "Policy" announcement -- .....the Bank of Canada’s April Monetary Police Report, released Wednesday......

    Police should read POLICY ;-)
    *&%^^### spell check
    Just saying --- hey do I win a prize?

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