Rates could go even lower – this is what brokers need to know

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The Bank of Canada won’t let sky-high housing prices deter it from cutting rates – what would that mean for key real estate markets? One former banker and current broker weighs in.

“From a Vancouver perspective, I don’t know that that would make a huge difference,” Ric Wilson, a broker with Mortgage Architects in Vancouver, told MortgageBrokerNews.ca. “They’re already at record lows; another $10 dollars a month per $100,000 [in mortgage cost] won’t change things very much.”

Further rate cuts could be nigh – despite ever-boiling real estate prices in two Canadian markets and the fact that the current overnight rate target sits at 0.5%.

“I don’t think of it as something that blocks us from changing interest rates,” Poloz recently told the Washington Post when asked whether exposures related to housing would deter the Central Bank from future interest rate cuts.

That may surprise some brokers, as record-low interest rates are often cited as a driving factor behind the historically hot housing prices in Toronto and Vancouver.

The Bank of Canada’s target rate was slashed to 0.5% in July of last year, and it currently sits at that mark. That’s the lowest it’s been since the great recession, when it was cut to 0.25%.

But it could go even lower.

“My past life is as an VP at a bank. I think the Western world is stuck in the need for heavy deleveraging and as much as central bankers talk a big game … I think we’re almost in a Japan-like cycle of decades of low interst rates to accommodate debt servicing,” Wilson said. “I can’t guarantee it, but I can’t see the room to raise interest rates without causing major economic calamity. So bankers talk a good game because it’s prudent.”
 

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