Interest rates and market-cooling policies to have clashing effects - analysts

Interest rates and market-cooling policies to have clashing effects - analysts

Interest rates and market-cooling policies to have clashing effects - analysts Climbing interest rates along with recently enacted policies intended to moderate runaway price growth will introduce a strong element of unpredictability into the Canadian housing market this year, according to various observers.
 
“2017 is likely to see a tug of war between rising longer-term interest rates and market-cooling policy measures pulling affordability in opposite directions, the net effect of which is unclear at this point,” according to Royal Bank of Canada chief economist Craig Wright and senior economist Robert Hogue, as quoted by The Globe and Mail.
 
Fiscal uncertainty fueled by Donald Trump’s victory in the U.S. presidential elections has led to a significant increase in longer-term rates, which in turn have pushed Canadian yields upward.
 
“Canada’s extended housing boom and attendant surge in home prices have rendered home ownership costs very sensitive to changes in interest rates – especially so in high-priced markets such as Vancouver and Toronto,” the analyst duo said.
 
“Therefore, the recent jump in bond yields and the likelihood of further increases in the period ahead pose a material risk to housing affordability in Canada in the short to medium term.”
 
However, the introduction of major changes to federal mortgage rules late last year along with the B.C. government’s implementation of a 15 per cent foreign buyers’ tax in mid-2016 might lead to a cooling effect on Canadian markets.
 
“Rule changes also are poised to restrict or alter the pricing of certain mortgage options available in the marketplace, similarly constituting further impediments to ownership for some buyers.”
 
Toronto-Dominion Bank economists Beata Caranci, Michael Dolega, and Dina Ignjatovic agreed with the prognosis, forecasting a 7.5 per cent drop in Vancouver’s existing home sales in 2017 and 3.4 per cent in 2018. On the other hand, Toronto sales will fare a bit better with an increase of 1.9 per cent this year, but will decline by 9.4 per cent in 2018.
 
“The changes afoot reinforce our long-held view of a soft landing both nationally and in the two markets of Toronto and Vancouver,” the TD economists said. “While we’re comfortable with this thesis of an orderly slowdown, predicting the timing and extent of any slowdown (amid these numerous moving parts) is no easy feat.”


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1 Comments
  • jimmyb99 2017-02-08 11:30:20 AM
    Single Family Vancouver Homes sale as per this site
    "saw a more dramatic 57.6 per cent year-over-year drop" - Does this constitute a soft landing?

    Riddle me this: “2017 is likely to see a tug of war between rising longer-term interest rates and market-cooling policy measures pulling affordability in opposite directions"

    Market cooling policies will cool the market. Rising Interest rates also cool the market. So how does this pull in opposite directions?


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