Higher short-term interest rates not expected until 2018, analyst says

Rapidly rising interest rates pose a risk to Canada’s housing market – but the industry can breathe easy on that regard for now, as the Bank of Canada has said that an interest cut remains on the table should risks to the country’s economy materialize.

A recent study by Canada Mortgage and Housing revealed that a “sudden increase” in interest rates resulting in higher borrowing costs for Canadians, could cause housing prices to fall 30%, while pushing unemployment as high as 11.3%, Global News reported.

Canadian Imperial Bank of Commerce senior economist Royce Mendes doesn’t expect the central bank to rapidly raise interest rates, the Globe and Mail reported. Mendes does not see higher short-term interest rates before 2018.

However, the Royal Bank of Canada recently said that the government may step in to cool off Toronto’s red-hot housing market. “Toronto is showing increasing signs of overheating.” It pointed out that affordability-related vulnerabilities continue to be major concerns in Vancouver and Toronto.

Last August, the Government of British Columbia started charging a 15% tax on foreign buyers of real estate in Metro Vancouver.

“When policy makers talk about cooling the housing market, they have to worry about cooling it too much,” Mendes said.

According to the Globe and Mail, Mendes is not worried about the rapid rise in Toronto real estate prices over the past couple of years, as employment has been strong in Ontario and lots of immigrants and migrants from Alberta have been settling in the Greater Toronto Area.

For Mendes, buyers who are looking for an increase in value from condo units should be cautious about purchasing now. But investors who simply want cash flow will find that this is a good time to be offering units for rent, the Globe and Mail said.

Canadians are starting to take on too much debt, Mendes said. But this is still has not reached levels seen in the US when the housing market slid in 2008.

MBN

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