Borrowing for Vancouver Real Estate

Bank of Canada Interest Rate Decision – July 19, 2011

“As anticipated, the Bank of Canada opted to hold the Bank’s target rate at 1 per cent this morning. On inflation, the Bank noted that, “…inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices.

” However, the Bank expects total CPI inflation to return to 2 per cent by the middle of 2012 as excess capacity in the economy is absorbed. The Bank pared back it’s growth forecast for 2011 and 2012 slightly to 2.8 and 2.6 per cent respectively, mirroring BCREA’s own national economic forecast for the next two years.”

Global Influence

“In reference to heightened uncertainty in the global economy due to ongoing debt concerns in Europe and the current wrangling over the US debt-celing, the Bank noted that “widespread concerns over sovereign debt have increased risk aversion and volatility in financial markets.” This uncertainty, along with a weaker outlook for US economic growth, will likley push the Bank’s next rate increase to September, but possibly to October. In light of a weaker global economy and increased uncertainty, we have pared back our expectations of Bank of Canada rate hikes to between 1.5 and 1.75 per cent by the end of 2011 with risk tilted to the downside. This means a continuation of very borrowing costs on variable rate products over the summer and into the fall which should help support housing markets this year.”

“Copyright British Columbia Real Estate Association. Reprinted with permission.”

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

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*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

Rob Says:
July 19th, 2011 at 12:26 pm

I find it interesting that in one breath we speak of how great we are doing as a country and then won’t raise rates. I understand that there are alot of moving parts to BOC decision. Is housing in that big of trouble with a mild rate increase? I wouldn’t think so. Not that I’m in either camp bull or bear, but something is just not right.

July 19th, 2011 at 1:57 pm

@Rob

A humble arm chair economic thought of the day….

I would suggest that there are many, many people who would join you in the “just not right” camp. The sense of the ‘just not right’ as I understand it and one that I think that prevails, is that locals don’t know how they will manage to buy a home while those from other countries consider our house prices a bargain.

We live in a land where on balance, life for the most part, is very good for the majority. However, if I’m reading the sentiment correctly there seems to be an ever increasing number within that majority who are feeling “the pinch” of reality and the ‘good life’s’ real cost.

As to the BOC’s position on rate increases – the multiplier effect of a home sale is incredible. That one event supports many other industries that in simple terms extends from the wall paper hanger to the Doctor prescribing ‘stress’ pills to keep you calm as you make those mortgage payments. One has to assume that BOC is aware of these implications and as such clearly understands that by raising rates it could well cause a severe slow down to the housing market which in turn effects all the other ancillary industries.

With this, my limited understanding, the bottom line from BOC’s position would be something like this – If the housing market takes a turn, it will do so but the repercussions will cause waves in a pond that will wash everyone with greater hardship.

Amazed Says:
July 19th, 2011 at 3:17 pm

You are absolutely correct that housing is a big worry from the BOC, however, there are many more worries than just housing.

The BOC and economies in general are on a cliff. Everyone has spent everything they can afford, and are having a very difficult time paying that money back. Raising rates will only make things more difficult. From the homeowner, to the manufacturing plant, higher rates will pull funds out of the economy and slow things down further. I don’t care what the BOC says, until GDP scores significant gains, we are staying at or very near historical lows for some time.

bbcoq Says:
July 19th, 2011 at 4:41 pm

Just my own thoughts but any sustained, long term bull market should have many small, minor price corrections within it and be able to adapt to changing economic conditions-this market has gone straight up which IS a concern.
Moreover, the price of people’s homes seems to be front and centre-along with the weather of course. Why is this? My guess as a former banker is that people are leveraged up and reason away high debts with high asset values-namely real estate. A correction would cause great concern I am betting but they are normal-heck, they are required so the market can consolidate and bring in new blood.
Add in the talk that Mr Carney and the banks are making to “talk down” the market there is reason for concern.
Add in the media talk of higher gas taxes, property taxes, user fees for needed infrastructure and you see higher costs of living outside real estate which as we know already has people stretched and having to do things like suites, foreign students and borders.
We seem to be at a point where housing costs are at an alltime high yet we are no better off and any normal correction could be dire-seems strange to me.
I am curious as to inventory and also what are you hearing Larry? i think a small correction or sustained plateau would be best thing for the market-right now everybody seems to be jumpy.

trashy Says:
July 19th, 2011 at 5:10 pm

Hey Larry,
You haven’t mentioned anything about the investor immigrant program being capped at 700 participants for the next year.
Any thoughts?

July 19th, 2011 at 5:30 pm

@trashy

sorry – little distracted with other stuff but if you have a moment maybe you could take the time to fill us in with your take on the subject

July 19th, 2011 at 5:34 pm

@bbcoq,
my guess is that we will see a slowing in sales for July. I’m not seeing prices fall off the map but inventory is sitting a little longer. Now the problem is to determine if this is just a summer (what ever that means this year weather wise) temporary adjustment.

RE: Jumpy – again I’m no psychologist but if seller state of mind matters I would say they are unusually anxious

Best place on meth Says:
July 19th, 2011 at 7:00 pm

Housing busts happen even with ultra low interest rates as we’ve seen in the U.S and Japan so it will happen here as well no matter what.

That being said, the next BOC meeting will bring a rate hike.

Book it.

July 19th, 2011 at 7:21 pm

@meth
Ah meth the eternal optimist! Are we to be as assured as those who assure us? 🙂

Rob Says:
July 19th, 2011 at 7:32 pm

Prudence has been punished and risk rewarded. That is the unfortunate part of all this.

shriller Says:
July 20th, 2011 at 10:48 am

My guess is that the BoC and Finance are a little jumpy themselves. I gather that the omnibus budget bill contained a few little lines to the effect that Finance has taken executive control over the CMHC. Since the CMHC has printed about 1 trillion (net) in government debt, it would seem appropriate that they are subjected to a little scrutiny by the revenue side. I hope their capital cushions are in order.
A question to Larry, are approvals getting harder to obtain on CMHC-backed mortgages?

July 20th, 2011 at 11:23 am

@shriller
re: approvals. I’m not aware that approvals are harder to get.

shriller Says:
July 20th, 2011 at 1:05 pm

Thanks Larry. Just wondering because of some anecdotal evidence via friends/colleagues.

L8erDude Says:
July 20th, 2011 at 7:08 pm

Cdn $ at 105.50…interest rates won’t be going anywhere soon

tony Says:
July 20th, 2011 at 11:04 pm

The idea of any central bank raising interest rates is laughable. With the debt that is outstanding in the world, any increase in interest rates would kill any economy. The script is a bunch of rhetoric about rising interest rates and dangers of debt. Perhaps the bank raises a token quarter point, and then as the economy slows, some blurb about uncertainty in the world and the increases stop. It’s called peak credit. It really is amazing how straight faced the central bankers are when they warn is about rising rates. Not their fault, most of them don’t really have a clue. 🙂

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