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Low interest rate supporting housing market
Nov 10, 2011

 

The continuation of low interest rates has given our local real estate market a real shot in the arm with record sales in September for that month and the second best October on record. 
WinnipegREALTORS® indicated in its October MLS® market release that year-to-date MLS® sales are less than two per cent off the record pace set in 2007.
The favourable low interest rate environment is 
expected to remain intact for longer than others are predicting. 
“Interest rates are expected to remain low for longer,” said Gregory Klump, the Canadian Real Estate Association’s chief economist, “which is good news for Canada’s housing market. 
“A number of factors will keep Canada’s housing market in check as interest rates remain low, including tightened mortgage regulations, high household debt levels, slower economic and job growth, and tentative consumer confidence. 
“With global economic growth expected to remain fragile, but positive, employment levels and income growth in Canada should remain solid and supportive for the housing market,” Klump added.
Interest rates to remain on hold for longer
Canadian Real Estate Association — The Bank of Canada kept its trend-setting bank rate at 1.25 per cent on October 25. This marks the ninth consecutive announcement in which interest rates have been held steady.
 The tone of the accompanying statement was very dovish, with the bank noting that “the global economy has slowed markedly as several downside risks to the projection outlined in the bank’s July Monetary Policy Report (MPR) have been realized.”
Of particular note, the bank said it now expects a “brief recession” in the Eurozone. The bank remains of the opinion that the euro-area crisis will be contained, but flagged obvious downside risks to that assumption.
As a result of this and other factors, the bank has downgraded its forecast Canadian economic growth this year (2.1 per cent compared to 2.8 per cent in the July MPR) and for 2012 (1.9 per cent compared to 2.6 per cent in the July MPR).
That said, the outlook for growth in 2013 was upgraded to 2.9 per cent from 2.1 per cent, indicating the bank believes that anticipated stronger growth will eventually be achieved. Along with the return of more robust economic activity being pushed further out into the future, core inflation is now expected to remain below the bank’s two-per-cent target until the end of 2013.
What it all means is that interest rates will likely be on hold even longer. Expectations as to how long it would be before the bank hikes rates had previously centered around the fall  of 2012, although it will now more likely be into 2013 before the bank begins to tighten monetary policy from current levels.
As of October 25, the advertised five-year lending rate stood at 5.29 per cent. This is down 0.1 percentage points from 5.39 per cent on September 7, when the bank made its last policy interest rate announcement.
The Bank of Canada will make its next scheduled rate announcement on December 6.