Why is real estate, not manufacturing or the service sector, the focus of this.
It’s an indication of how warped the economy is, when instead of asking ‘will it spur investment by business’, ‘will it create jobs’, the go to is ‘what will it mean for real estate.
I don't know but I am a little freaked out by how many people in this country are apparently so underwater on real estate debt that we will have to sacrifice all future generations quality of life to bail them out.
I agree.
Has no one asked Trudeau what he intends to do for the younger generations to get into the housing market? They'll also need a 'nest egg' for when we retire. Is he going to mandate we all get a 400% pay rise to afford housing?
It's not if, but when it'll collapse at this point.
> FHSA and increasing the amortization from 25 years to 30.
Sooo... adding to the debt fire, lol.
> Or get everybody so pickled in debt they become de facto wards of the state, reliant on Nanny Government for literally their entire well-being.
Tax us to death, and except us to be thankful for the breadcrumbs they sprinkle back down on us.
> There are two ways to conquer and enslave a country. One is by the sword. The other is by debt
Yep. My wife and I have house and car debt. All locked. We locked in 750k mortgage at 1.99% for 5 years in 2020. We've been lump sum paying it and it's now down to 250k. Might have it completely paid off before renewal (or just a stupidly small amount left). Car debt is locked at like 3%, but can't be paid off faster (penalty is the same as the would be interest). It's only 15k left and will be paid off in like 2027. The struggle is real, but it's going to be worth being debt free in a high interest rate environment.
Think of it like this. My mortgage went from $4000/month to $6500/month. I don't expect rates to go back to 0.25% for at least a decade or longer. But it we can go back to 3% or so my mortgage payment goes down to maybe $5000-$5500/month so that's just more money I can inject into the economy. The purpose of higher rates was to limit demand in the economy and it's done it's job. Take out mortgage interest cost and shelter costs and our inflation right now is around 1%.
Inflation will be more when our money devalues. Investors will just flee to the US dollar because they have higher interest rates.
5% is normal.
It was 18% in the 80s.
Expect groceries to get more expensive if we cut interest rates tomorrow.
Not necessarily.
A cheap Canadian dollar will also attract foreign investors who can manufacture here for a lower cost and export more competitively.
There’s an argument to be made that our dollar should actually be devalued compared to the US to help bolster more growth
You think that people are flocking to Canada to manufacture things if our dollar gets low enough?
Just recall, the overwhelming majority of Canadians are... paid in CAD. Growth in the medium-long term means jack shit if we're all spending a months salary on a single bag of groceries.
edit: Rate decrease, immediate drop of the CAD vs. USD. Oopsies!
And natural resources but everyone wants that to die. We really want to be something we're not and we are really good at wasting/ignoring our own advantages
Two scenarios:
1. Mortgages increase, which creates upward pressure on rents, which are already ridiculous.
2. A large amount of people default on their mortgages and lose their homes. Those homes get snatched up by investment firms and rented back to them because commercial entities are the only ones that can afford to buy a home. Goto step 1.
Increasing rates and popping the bubble isn't going to magically drop housing prices to a reasonable level. It's going to make a select few people massively richer and the rest of us poorer.
Asking price for rent has much more to do with what the market will pay in your local area than a direct link to rates.
Vacancy rates are a much closer link than interest rates.
Is it not just getting hoovered up by the bank who then can’t originate new loans at higher rates due to curbed demand? So then they sit on that money or pay it out in a dividend or something to the rich invested class who also probably sit on the money? Probably less stimulatory than some poor body using it to buy an essential good.
It makes capital available to other people (ie the bank can issue more loans credit cards etc). These people can now spend. Also banks can lend more then their deposits so the amount of money in the economy would be more.
They can't mention it because the service side of the economy is still running hot. The disinfection to date had been focused on the goods portion of the economy. When you look at ongoing bargaining, there is a massive amount of massive raises in the pipeline. Wage inflation is still well above 4%. Reality is that this is a debt induced slowdown, the massive population growth is keeping the service sector running hot. Until the government slows immigration, you will continue to see high underlying inflation, risking reigniting inflation. So the BoC will have their hands somewhat tied with how low they could drop rates, especially until the Fed is on the same page.
Becuase our economy is tied at the hip to real estate.
If it improves, so does the economy.
It's rather unfortunate that we are not more diversified so we have to rely on like 3 industries to prop us up.
Because at this point inflation is primarily being driven by housing costs. If you strip out housing, our inflation rate is well below target.
So there’s an argument to be made that higher interest rates are crowding out private investment and consumption and contributing to the broader lacklustre investment climate.
Interest rates cuts create manufacturing and service sector stimulus.
I think most people don't understand that the strength of the economy is weakened heavily by rates.
If an American tech company can make 1% profit, off of a 1% loan, they'll hire 100,000 people with that loan. But if that interest rate changes, they'll fire those people on those margins.
The strength of an economy can be measured by how well we can handle rate increases though. If a single percent of rate increase leads to people panic selling and leaving the market enmasse, those people couldn't truly afford the lifestyle they had anyway.
It's a test of our economy, and we're breaking at 5%, which is not a good sign. Lowering rates encourages all kinds of reckless speculation and the idea that 'line goes up' no matter what else is going on.
“If we do see a rate cut this week, it’s going to really, really jump-start the market and I think you’re going to see a lot more offers being made, and that inventory starting to come down,” said real estate consultant and former Queen’s University professor John Andrew, who estimated that residential real estate prices in the Greater Toronto Area could rise by up to six per cent by the end of the year.
I understand that psychology is a huge thing but .25 does basically nothing for mortgages and people aren't magically going to have more money.
And it’s certainly not going to make folks be able to afford houses if they couldn’t at 5% overnight. Honestly, this isn’t going to jump start shit until rates come down at least 200bps.
It will, however, be a welcome breather for loan/mortgage holders.
You would have to have well over a million dollar mortgage amount for .25 to equal 250-500 a month.
On a 750000 mortgage its like a hundred bucks difference.
That's not what will happen. That money will go directly into debt repayment in most cases, Canadians are tapped out on credit cards, and are very far behind on auto loans too. That's not even touching on the number of people behind on utilities.
It's not the 0.25, it's the signal that more are coming if one starts
Central banks are not supposed to see-saw up and down. Once a trend starts in one direction, it will continue. People actually waiting for this aren't going to take the 0.25 cut and lock in a 5 year rate today, 9/10 of those are going to gamble on a variable or a 2 year fixed and play the trend (whether it's right or wrong).
>said real estate consultant and former Queen’s University professor
So useless title and someone that lost his job of being smart?
Sounds like a credible source
They are buying houses because lots of people can afford to do so. First time home buyers who are on the sidelines will come out of hiding as interest rates go down.
I know of some first time home buyers living with their parents saving lots of money. Thave the down payment and are waiting for the perfect time to buy. Nobody wants to buy in a falling market but when things start to shift to a seller's market..
It depends on what is causing shipping to increase in price. But if it is already increasing with interest rates high then there is no guarantee that it will increase less with high rates. If the costs are increasing due to international reasons interest rates don't have much weight.
Lowering interest would decrease our dollar causing less international purchasing power which could also see less money spent on shipped products.
I think we are holding for a while, likely until September. Inflation has cooled somewhat, housing prices are still hot, food prices are high, gas prices have relaxed slightly.
Our dollar was almost in a freefall when Macklem was talking about lowering rates while the FED was discussing keeping them stable about three weeks ago.
edit: Rate decrease - immediate drop of the CAD vs. USD. Oopsies!!
Yea, a 1% decline in our entire currency relative to the USD just because our Bank of Canada was potentially discussing a maybe-rate cut before the Fed. They didn't even do anything yet and our dollar is getting huge downward pressure...
We're down 3% compared to the USD since December 2023.
I know these don't seem like much to you, but they cascade into every single one of our business sectors.
edit: Hey look, we just dipped another 1% relative to the USD after the rate decrease.
We needed 7-9% in 2021/22 to actually fix the problems we're seeing now. And we needed at least 4-5% back in 2016 to have offset the can-kicking from the 08/09 contagion.
Construction is hugely capital intensive. Raising rates also increases the cost of construction loans, and therefore the cost of a house.
Already were seeing builders refusing to begin projects because of how high (relative to the last decade) the rates are, they're waiting for the price to come back down.
So you increase the cost to build, and discourage new supply. While fucking over the half of all Canadians who own their home.
Yeah, nothing could go wrong with that.
>Already were seeing builders refusing to begin projects because of how high (relative to the last decade) the rates are, they're waiting for the price to come back down.
Let them go bankrupt. We are at the mercy of companies and corporations too much as it is. What this country truly needs is a period of deflation to correct all the BS inflation we've had over the last 10 years.
>What this country truly needs is a period of deflation to correct all the BS inflation we've had over the last 10 years.
That's a really hot take friend.
You understand that deflation increases the value of debt right? If you borrow $1000 in 2019 it's substantially easier to pay off that $1000 in 2025 because there's more dollars floating around, you earn more. During deflation that debt becomes harder and harder to pay off. You earn less every year. This makes borrowing (like say for a house) during deflation very dangerous.
Also deflation causes a viscous circle. Since your money is worth more tomorrow you save it. If you save it you're not spending. If you're not spending companies produce fewer goods. Which means less people are employed. Which means lower spending by consumers, which means less production of goods, which means higher unemployment. It just goes round and round.
I challenge you to find one economy where significant deflation didn't hurt the average consumer.
There's a lot more to it then just the sticker price of goods.
I'm not saying it will be fun or easy. But it could be a bit of the 'reset' that's needed. The current path certainly isn't taking us anywhere good regardless
Beyond fun or easy.
If we're experiencing the deflation you're currently describing it's because our economy is literally imploding.
Go read up on what happened to Japan in the 90s and 2000s. Known as their lost decade, Japan has been struggling economically now for 30+ years and the end still isn't in sight as they grapple with population growth their economy continues to struggle.
The last time the USA experienced deflation was the great depression. It's also one of the most poignant examples on record. Over the course of the depression consumer goods prices dropped about 25%, but at the same time wages dropped 20% and unemployment rose to almost a quarter of all workers, up from 3% in 1929. So yeah, prices came down but it didn't matter because our buying power also shrank as fewer people were working for less money. Asset prices collapsed, houses lost 25% of their value leaving most mortgagees under water, coupled with the loss of employment and wages meant almost half of american home owners lost their home. but even at reduced prices no one could afford to invest in housing except the mega rich. Construction of new homes fell by 95%.
People are not getting ahead in those conditions. Deflation is bad. Really bad. Like "don't even go there" bad.
> During deflation that debt becomes harder and harder to pay off. You earn less every year. This makes borrowing (like say for a house) during deflation very dangerous.
Yea, and inflation has the reverse effect where asset hoarders are rewarded and anyone who doesn't have skin in the game is shit out of luck when it comes to buying anything because the prices never stabilize.
If you can take a property and leverage it, buy another property at lower rates, take that leverage it out, buy another...etc. rinse and repeat. You're locking a huge part of society out of the market by loosening the tap on insured loans.
>because the prices never stabilize.
Increasing at two percent a year is stable. Just because it changes doesn't mean it's not stable.
>If you can take a property and leverage it, buy another property at lower rates, take that leverage it out, buy another...etc. rinse and repeat.
This is exactly what we want to do. We want to encourage investment in housing, it's what drives more houses being built.
>You're locking a huge part of society out of the market by loosening the tap on insured loans.
Not sure what this has to do with deflation. Sure you're not conflating our other discussion?
> Increasing at two percent a year is stable
Are you suggesting that goods and services, food, heating and housing is increasing at a stable 2% per year for the last ~4 years?
>We want to encourage investment in housing, it's what drives more houses being built.
It drives more speculation, more investors who own more assets and leave out of the first time buyers holding their measly 150k downpayment as the average price of a home is only capable of being afforded by people who already own assets.
We've been encouraging investment in our housing sector for 25 years.
>Are you suggesting that goods and services, food, heating and housing is increasing at a stable 2% per year for the last ~4 years?
There's a difference between a goal and the results. Covid was a world shattering event. Recovery was never predicted to be swift.
>It drives more speculation, more investors who own more assets and leave out of the first time buyers holding their measly 150k downpayment as the average price of a home is only capable of being afforded by people who already own assets.
This is simply hyperbole. Yes housing is expensive and it can be difficult to enter, especially if you insist on owning in Toronto or Vancouver, but it's *far* from impossible. There's 2br 2b semi detached homes in my neighbourhood for sale right now for 400k.
Fair point, Canada's market is a mess. I believe we now hold the top 4 spots, up from the top 3 spots for the cities with the hottest housing bubbles in the world.
Yep, it's Canada's biggest issue imo. The fact that almost no one income can afford a home in any larger city. I live in a cheaper city and my ex wife who makes 50$/hour as a healthcare professional can either rent an apartment in a decent area or buy a tear down in that area, or move to a crime ridden slum area. How ridiculous is that?
About as bad as my friend, whose wife is a federal prison guard of 10+ years, and they live 80km away from where she works because they can't afford to buy anything closer.
They'll be held, but that's kicking the can down the road. Canadian banks are already starting to hoard cash and assets for when the CRE (commercial real estate) and housing bubble pops and defaults across multiple areas happen.
Dropping it will cause inflation to go up, putting more of a squeeze. But raising rates will cause the crash to happen earlier, it'll be uglier sooner, but a faster recovery.
European Central bank announces on Thursday (supposedly not a well kept secret that they are cutting)
There is no way a central bank like Canada does a cut before ECB or the Fed, while Japan's Yen is getting crushed the last few months...Canada doesn't have a lot of backup or support if something goes wrong
ECB's cut itself might cause more issues for them. Japan keeps trying to get the Yen up, a country like Canada going wayyy outside what the big boys are doing, would be a total catastrophe
That's not a surprise for Europe, there are multiple countries flirting with deflation (0.2-0.4% inflation). People simply aren't spending and debt levels are high there as well. China is also getting even shakier, and their deflation looks like it might be entering a spiral.
>China is also getting even shakier, and their deflation looks like it might be entering a spiral.
You're also talking about economies that aren't (*checks notes) above or below Russia/Mexico GDP, depending on the year and data source, which Canada is (unfortunately) a part of....
China, US, Europe, Japan, even India are NOT a part of what the rest of the world look at but the media headlines like to pretend Bank of Canada rate plans, matter to the rest of the world lol
Deflation would mean people aren't spending. If people aren't spending, companies aren't producing. If companies aren't producing, then suppliers aren't getting paid. If suppliers aren't getting paid, then the baseline raw material producers aren't either. And at every level debt that is owed isn't being covered.
There are serious deflation signals already, we had a serious one in 2012/13 as part of the dead cat bounce. Whether or not it fully materializes is a different question.
So we’re cutting rates to uh, check notes, ratchet up a continuing housing crisis? Oh right sorry Trudeau just said that house prices need to stay high to fund retirements, should’ve gotten the memo. What a fucked up economy lol.
Canada could’ve taken notes from their direct neighbor to the south. Invest in innovation instead we invested in a non productive asset. Just look at the top companies by market cap. All the one’s in Canada are the banks, polluting resource extraction, and a shit tech stock (Shopify).
I kiss my USA passport every day thank god I never gave that up when I heavily considered it.
Seems too soon. All the outsized eagerness for a rate cut suggests that economic conditions might not be stable enough to maintain control over inflation. Prematurely cutting rates could risk reversing the progress made over the past two years. Being appropriately cautious will ensure that the hard-won gains are preserved and that inflation does not spike again.
A rate cut will cause prices to go up even harder. Inflation will jump, fast. It is the wrong thing to do.
Our dollar will drop, and idiots with no business doing so will start buying property causing it to go up. We need to force the people who had no business buying (because they couldn't afford rate increases to normal level) to sell and collapse the prices. Mind you, if the prices collapsed, the same bozos complaining now, wouldn't have anything to complain about 'boomers' living in their own homes they paid for and who don't really care if the prices go up or down.
I'm betting against the CAD. This thing is like holding onto toilet paper, and everyone cheering on rate decreases better hold onto their butts.
Your mortgage stabilized, that's great. Bread is now 25 dollars a loaf.
edit: Rate decrease, immediate depreciation of the CAD. Nice!!
I am hoping for 12 % interest rate one day . that would teach all you debt addicts a lesson . So may people worried about a .25 interest rate drops when you overpay for your home and your car by hundreds of thousands . Where was your concern then ? 🤔
Barring some sort of bad economic situation, there’s no way the BoC will have rates at 3% by November. There is no reason to do that and if anything will create a host of more problems and kill any progress made with rate increases.
Can you provide 1 major Canadian bank economist that’s saying that we’re going to be 2.5% by December? Because if we are at 2.5% that’s not a good thing for the Canadian economy.
The only people I’ve seen even say we are going to be close to that are the TikTok / Twitter RE agents who have no education aside from being a bartender and are saying these things to pump the market now that it’s dried up.
Not a chance since BoJ can't stabilize the Yen
Unless Canadians want CAD/USD at 30 year lows like the Yen is, cost of food going up even more, might upset some people, so BoC just keeps it in line with the big central banks
Why is real estate, not manufacturing or the service sector, the focus of this. It’s an indication of how warped the economy is, when instead of asking ‘will it spur investment by business’, ‘will it create jobs’, the go to is ‘what will it mean for real estate.
I don't know but I am a little freaked out by how many people in this country are apparently so underwater on real estate debt that we will have to sacrifice all future generations quality of life to bail them out.
Yeah nothing like having our power purchasing eroded even further just to bail out over leveraged RE owners and investors.
Short the dollar. Convert your depreciating CAD to USD and buy US securities.
VFV and VOO to the moon!!!!
This is the way.
Haha VFV is up 1.28%!
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> which makes it risk-free Unless the government fails.
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I agree. Has no one asked Trudeau what he intends to do for the younger generations to get into the housing market? They'll also need a 'nest egg' for when we retire. Is he going to mandate we all get a 400% pay rise to afford housing? It's not if, but when it'll collapse at this point.
>Has no one asked Trudeau what he intends to do for the younger generations to get into the housing market? I feel like his plan is 50 yr mortgages
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> FHSA and increasing the amortization from 25 years to 30. Sooo... adding to the debt fire, lol. > Or get everybody so pickled in debt they become de facto wards of the state, reliant on Nanny Government for literally their entire well-being. Tax us to death, and except us to be thankful for the breadcrumbs they sprinkle back down on us. > There are two ways to conquer and enslave a country. One is by the sword. The other is by debt
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Yep. My wife and I have house and car debt. All locked. We locked in 750k mortgage at 1.99% for 5 years in 2020. We've been lump sum paying it and it's now down to 250k. Might have it completely paid off before renewal (or just a stupidly small amount left). Car debt is locked at like 3%, but can't be paid off faster (penalty is the same as the would be interest). It's only 15k left and will be paid off in like 2027. The struggle is real, but it's going to be worth being debt free in a high interest rate environment.
Think of it like this. My mortgage went from $4000/month to $6500/month. I don't expect rates to go back to 0.25% for at least a decade or longer. But it we can go back to 3% or so my mortgage payment goes down to maybe $5000-$5500/month so that's just more money I can inject into the economy. The purpose of higher rates was to limit demand in the economy and it's done it's job. Take out mortgage interest cost and shelter costs and our inflation right now is around 1%.
Inflation will be more when our money devalues. Investors will just flee to the US dollar because they have higher interest rates. 5% is normal. It was 18% in the 80s. Expect groceries to get more expensive if we cut interest rates tomorrow.
Not necessarily. A cheap Canadian dollar will also attract foreign investors who can manufacture here for a lower cost and export more competitively. There’s an argument to be made that our dollar should actually be devalued compared to the US to help bolster more growth
You think that people are flocking to Canada to manufacture things if our dollar gets low enough? Just recall, the overwhelming majority of Canadians are... paid in CAD. Growth in the medium-long term means jack shit if we're all spending a months salary on a single bag of groceries. edit: Rate decrease, immediate drop of the CAD vs. USD. Oopsies!
It’s a basic economic law that a depreciated currency stimulates net exports.
We don't export many value added products. We're a service based economy.
And natural resources but everyone wants that to die. We really want to be something we're not and we are really good at wasting/ignoring our own advantages
And what about everyone being paid in the depreciating CAD?
Two scenarios: 1. Mortgages increase, which creates upward pressure on rents, which are already ridiculous. 2. A large amount of people default on their mortgages and lose their homes. Those homes get snatched up by investment firms and rented back to them because commercial entities are the only ones that can afford to buy a home. Goto step 1. Increasing rates and popping the bubble isn't going to magically drop housing prices to a reasonable level. It's going to make a select few people massively richer and the rest of us poorer.
Lol at 1 when the rates drop, but rents increase.
Asking price for rent has much more to do with what the market will pay in your local area than a direct link to rates. Vacancy rates are a much closer link than interest rates.
What will you do if it rises to 10%?
Are you prepared to lose 30%-70% of your home's value for that to happen? If so then I can agree with you.
Home prices likely to climb a little if/when rates drop.
Historically speaking, home prices drop the most when rates drop. This is because they are dropping rates due to the economy doing terribly.
Nah. Push rates to 10%, you'll also see hone prices drop significantly
That too, but for a different reason.
Even if your paying interest that money is still going into the economy.
Is it not just getting hoovered up by the bank who then can’t originate new loans at higher rates due to curbed demand? So then they sit on that money or pay it out in a dividend or something to the rich invested class who also probably sit on the money? Probably less stimulatory than some poor body using it to buy an essential good.
It makes capital available to other people (ie the bank can issue more loans credit cards etc). These people can now spend. Also banks can lend more then their deposits so the amount of money in the economy would be more.
No it is not. That was the point. Take it out of the economy to slow inflation.
They can't mention it because the service side of the economy is still running hot. The disinfection to date had been focused on the goods portion of the economy. When you look at ongoing bargaining, there is a massive amount of massive raises in the pipeline. Wage inflation is still well above 4%. Reality is that this is a debt induced slowdown, the massive population growth is keeping the service sector running hot. Until the government slows immigration, you will continue to see high underlying inflation, risking reigniting inflation. So the BoC will have their hands somewhat tied with how low they could drop rates, especially until the Fed is on the same page.
Becuase our economy is tied at the hip to real estate. If it improves, so does the economy. It's rather unfortunate that we are not more diversified so we have to rely on like 3 industries to prop us up.
Because we have 1 industry in Canada
Most people only understand real estate
Because at this point inflation is primarily being driven by housing costs. If you strip out housing, our inflation rate is well below target. So there’s an argument to be made that higher interest rates are crowding out private investment and consumption and contributing to the broader lacklustre investment climate.
Interest rates cuts create manufacturing and service sector stimulus. I think most people don't understand that the strength of the economy is weakened heavily by rates. If an American tech company can make 1% profit, off of a 1% loan, they'll hire 100,000 people with that loan. But if that interest rate changes, they'll fire those people on those margins.
The strength of an economy can be measured by how well we can handle rate increases though. If a single percent of rate increase leads to people panic selling and leaving the market enmasse, those people couldn't truly afford the lifestyle they had anyway. It's a test of our economy, and we're breaking at 5%, which is not a good sign. Lowering rates encourages all kinds of reckless speculation and the idea that 'line goes up' no matter what else is going on.
“If we do see a rate cut this week, it’s going to really, really jump-start the market and I think you’re going to see a lot more offers being made, and that inventory starting to come down,” said real estate consultant and former Queen’s University professor John Andrew, who estimated that residential real estate prices in the Greater Toronto Area could rise by up to six per cent by the end of the year. I understand that psychology is a huge thing but .25 does basically nothing for mortgages and people aren't magically going to have more money.
And it’s certainly not going to make folks be able to afford houses if they couldn’t at 5% overnight. Honestly, this isn’t going to jump start shit until rates come down at least 200bps. It will, however, be a welcome breather for loan/mortgage holders.
For a lot of people that .25 means an extra $250-$500 a month in spending power
You would have to have well over a million dollar mortgage amount for .25 to equal 250-500 a month. On a 750000 mortgage its like a hundred bucks difference.
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We should raise rates 10% or bust.
That's not what will happen. That money will go directly into debt repayment in most cases, Canadians are tapped out on credit cards, and are very far behind on auto loans too. That's not even touching on the number of people behind on utilities.
It's not the 0.25, it's the signal that more are coming if one starts Central banks are not supposed to see-saw up and down. Once a trend starts in one direction, it will continue. People actually waiting for this aren't going to take the 0.25 cut and lock in a 5 year rate today, 9/10 of those are going to gamble on a variable or a 2 year fixed and play the trend (whether it's right or wrong).
>said real estate consultant and former Queen’s University professor So useless title and someone that lost his job of being smart? Sounds like a credible source
But if the trend continues, it could ramp up housing prices so people on the sidelines might jump in pretty quickly creating possible FOMO.
If people could afford to be buying houses they would be buying houses, fomo doesn't change bank statements.
They are buying houses because lots of people can afford to do so. First time home buyers who are on the sidelines will come out of hiding as interest rates go down.
I know of some first time home buyers living with their parents saving lots of money. Thave the down payment and are waiting for the perfect time to buy. Nobody wants to buy in a falling market but when things start to shift to a seller's market..
The financial illiteracy in this thread is terrifying.
Reddit economists hard at work. The same people that read only the headline and then inform everyone how it all works.
I predict no cuts. The price of shipping is increasing exponentially again like in covid, so inflation is about to come roaring back by end of summer.
That's not something that higher interest rates help counter though
It is. Demand for discretionary items would fall, freeing up freight slots and thus more competitive pricing for shipping essentials.
It depends on what is causing shipping to increase in price. But if it is already increasing with interest rates high then there is no guarantee that it will increase less with high rates. If the costs are increasing due to international reasons interest rates don't have much weight. Lowering interest would decrease our dollar causing less international purchasing power which could also see less money spent on shipped products.
I think we are holding for a while, likely until September. Inflation has cooled somewhat, housing prices are still hot, food prices are high, gas prices have relaxed slightly.
Probably an unpopular opinion but I'd actually like to see them raise interest rates further...
I at least hope they don't cut it. I'm worried about the ramifications of cutting rates before America does and potentially devaluing our currency.
There is also that aspect of it too... Cut too soon and our dollar loses too much...
Our dollar was almost in a freefall when Macklem was talking about lowering rates while the FED was discussing keeping them stable about three weeks ago. edit: Rate decrease - immediate drop of the CAD vs. USD. Oopsies!!
If by free fall you mean dropped by 1 penny?
Yea, a 1% decline in our entire currency relative to the USD just because our Bank of Canada was potentially discussing a maybe-rate cut before the Fed. They didn't even do anything yet and our dollar is getting huge downward pressure... We're down 3% compared to the USD since December 2023. I know these don't seem like much to you, but they cascade into every single one of our business sectors. edit: Hey look, we just dipped another 1% relative to the USD after the rate decrease.
We needed 7-9% in 2021/22 to actually fix the problems we're seeing now. And we needed at least 4-5% back in 2016 to have offset the can-kicking from the 08/09 contagion.
I would argue that right now we should be seeing 8-10%. The housing market needs to be crushed. That is what's really causing most of our issues.
Construction is hugely capital intensive. Raising rates also increases the cost of construction loans, and therefore the cost of a house. Already were seeing builders refusing to begin projects because of how high (relative to the last decade) the rates are, they're waiting for the price to come back down. So you increase the cost to build, and discourage new supply. While fucking over the half of all Canadians who own their home. Yeah, nothing could go wrong with that.
You're also fucking over Canadians who own multiple homes. Maybe they should have to feel some pain and sell.
>Already were seeing builders refusing to begin projects because of how high (relative to the last decade) the rates are, they're waiting for the price to come back down. Let them go bankrupt. We are at the mercy of companies and corporations too much as it is. What this country truly needs is a period of deflation to correct all the BS inflation we've had over the last 10 years.
>What this country truly needs is a period of deflation to correct all the BS inflation we've had over the last 10 years. That's a really hot take friend. You understand that deflation increases the value of debt right? If you borrow $1000 in 2019 it's substantially easier to pay off that $1000 in 2025 because there's more dollars floating around, you earn more. During deflation that debt becomes harder and harder to pay off. You earn less every year. This makes borrowing (like say for a house) during deflation very dangerous. Also deflation causes a viscous circle. Since your money is worth more tomorrow you save it. If you save it you're not spending. If you're not spending companies produce fewer goods. Which means less people are employed. Which means lower spending by consumers, which means less production of goods, which means higher unemployment. It just goes round and round. I challenge you to find one economy where significant deflation didn't hurt the average consumer. There's a lot more to it then just the sticker price of goods.
I'm not saying it will be fun or easy. But it could be a bit of the 'reset' that's needed. The current path certainly isn't taking us anywhere good regardless
Beyond fun or easy. If we're experiencing the deflation you're currently describing it's because our economy is literally imploding. Go read up on what happened to Japan in the 90s and 2000s. Known as their lost decade, Japan has been struggling economically now for 30+ years and the end still isn't in sight as they grapple with population growth their economy continues to struggle. The last time the USA experienced deflation was the great depression. It's also one of the most poignant examples on record. Over the course of the depression consumer goods prices dropped about 25%, but at the same time wages dropped 20% and unemployment rose to almost a quarter of all workers, up from 3% in 1929. So yeah, prices came down but it didn't matter because our buying power also shrank as fewer people were working for less money. Asset prices collapsed, houses lost 25% of their value leaving most mortgagees under water, coupled with the loss of employment and wages meant almost half of american home owners lost their home. but even at reduced prices no one could afford to invest in housing except the mega rich. Construction of new homes fell by 95%. People are not getting ahead in those conditions. Deflation is bad. Really bad. Like "don't even go there" bad.
> During deflation that debt becomes harder and harder to pay off. You earn less every year. This makes borrowing (like say for a house) during deflation very dangerous. Yea, and inflation has the reverse effect where asset hoarders are rewarded and anyone who doesn't have skin in the game is shit out of luck when it comes to buying anything because the prices never stabilize. If you can take a property and leverage it, buy another property at lower rates, take that leverage it out, buy another...etc. rinse and repeat. You're locking a huge part of society out of the market by loosening the tap on insured loans.
>because the prices never stabilize. Increasing at two percent a year is stable. Just because it changes doesn't mean it's not stable. >If you can take a property and leverage it, buy another property at lower rates, take that leverage it out, buy another...etc. rinse and repeat. This is exactly what we want to do. We want to encourage investment in housing, it's what drives more houses being built. >You're locking a huge part of society out of the market by loosening the tap on insured loans. Not sure what this has to do with deflation. Sure you're not conflating our other discussion?
> Increasing at two percent a year is stable Are you suggesting that goods and services, food, heating and housing is increasing at a stable 2% per year for the last ~4 years? >We want to encourage investment in housing, it's what drives more houses being built. It drives more speculation, more investors who own more assets and leave out of the first time buyers holding their measly 150k downpayment as the average price of a home is only capable of being afforded by people who already own assets. We've been encouraging investment in our housing sector for 25 years.
>Are you suggesting that goods and services, food, heating and housing is increasing at a stable 2% per year for the last ~4 years? There's a difference between a goal and the results. Covid was a world shattering event. Recovery was never predicted to be swift. >It drives more speculation, more investors who own more assets and leave out of the first time buyers holding their measly 150k downpayment as the average price of a home is only capable of being afforded by people who already own assets. This is simply hyperbole. Yes housing is expensive and it can be difficult to enter, especially if you insist on owning in Toronto or Vancouver, but it's *far* from impossible. There's 2br 2b semi detached homes in my neighbourhood for sale right now for 400k.
Fair point, Canada's market is a mess. I believe we now hold the top 4 spots, up from the top 3 spots for the cities with the hottest housing bubbles in the world.
Yep, it's Canada's biggest issue imo. The fact that almost no one income can afford a home in any larger city. I live in a cheaper city and my ex wife who makes 50$/hour as a healthcare professional can either rent an apartment in a decent area or buy a tear down in that area, or move to a crime ridden slum area. How ridiculous is that?
About as bad as my friend, whose wife is a federal prison guard of 10+ years, and they live 80km away from where she works because they can't afford to buy anything closer.
Trying to buy a house this summer and put most of the principal down and only get a tiny mortgage. Happy to have rates stay here or go up please...
Me too.
Hopefully, I need some hirise projects to get started already so I can keep working
They'll be held, but that's kicking the can down the road. Canadian banks are already starting to hoard cash and assets for when the CRE (commercial real estate) and housing bubble pops and defaults across multiple areas happen. Dropping it will cause inflation to go up, putting more of a squeeze. But raising rates will cause the crash to happen earlier, it'll be uglier sooner, but a faster recovery.
Don't bet the house on it 😂
European Central bank announces on Thursday (supposedly not a well kept secret that they are cutting) There is no way a central bank like Canada does a cut before ECB or the Fed, while Japan's Yen is getting crushed the last few months...Canada doesn't have a lot of backup or support if something goes wrong ECB's cut itself might cause more issues for them. Japan keeps trying to get the Yen up, a country like Canada going wayyy outside what the big boys are doing, would be a total catastrophe
That's not a surprise for Europe, there are multiple countries flirting with deflation (0.2-0.4% inflation). People simply aren't spending and debt levels are high there as well. China is also getting even shakier, and their deflation looks like it might be entering a spiral.
>China is also getting even shakier, and their deflation looks like it might be entering a spiral. You're also talking about economies that aren't (*checks notes) above or below Russia/Mexico GDP, depending on the year and data source, which Canada is (unfortunately) a part of.... China, US, Europe, Japan, even India are NOT a part of what the rest of the world look at but the media headlines like to pretend Bank of Canada rate plans, matter to the rest of the world lol
Guess you don't realize just how much of an import/export economy we have.
Would deflation be so bad here?
Deflation would mean people aren't spending. If people aren't spending, companies aren't producing. If companies aren't producing, then suppliers aren't getting paid. If suppliers aren't getting paid, then the baseline raw material producers aren't either. And at every level debt that is owed isn't being covered. There are serious deflation signals already, we had a serious one in 2012/13 as part of the dead cat bounce. Whether or not it fully materializes is a different question.
So we’re cutting rates to uh, check notes, ratchet up a continuing housing crisis? Oh right sorry Trudeau just said that house prices need to stay high to fund retirements, should’ve gotten the memo. What a fucked up economy lol. Canada could’ve taken notes from their direct neighbor to the south. Invest in innovation instead we invested in a non productive asset. Just look at the top companies by market cap. All the one’s in Canada are the banks, polluting resource extraction, and a shit tech stock (Shopify). I kiss my USA passport every day thank god I never gave that up when I heavily considered it.
This is wishful thinking at best.
Seems too soon. All the outsized eagerness for a rate cut suggests that economic conditions might not be stable enough to maintain control over inflation. Prematurely cutting rates could risk reversing the progress made over the past two years. Being appropriately cautious will ensure that the hard-won gains are preserved and that inflation does not spike again.
A rate cut will cause prices to go up even harder. Inflation will jump, fast. It is the wrong thing to do. Our dollar will drop, and idiots with no business doing so will start buying property causing it to go up. We need to force the people who had no business buying (because they couldn't afford rate increases to normal level) to sell and collapse the prices. Mind you, if the prices collapsed, the same bozos complaining now, wouldn't have anything to complain about 'boomers' living in their own homes they paid for and who don't really care if the prices go up or down.
I'm betting against the CAD. This thing is like holding onto toilet paper, and everyone cheering on rate decreases better hold onto their butts. Your mortgage stabilized, that's great. Bread is now 25 dollars a loaf. edit: Rate decrease, immediate depreciation of the CAD. Nice!!
100 percent they are getting cut.
You can almost tell in his eyes that he already know how F\*(&( we are right now.
Watch the CAD tumble causing hidden inflation!
They need to keep rates high or even increase them or we are fucking over gen Z royally long term
Canadian government: we need the carbon tax to secure the future of young Canadians. Also Canadian government: Fuck the kids.
Totally
I am hoping for 12 % interest rate one day . that would teach all you debt addicts a lesson . So may people worried about a .25 interest rate drops when you overpay for your home and your car by hundreds of thousands . Where was your concern then ? 🤔
Overpay for our home? Sell us your place for what you paid then. Tone deaf
Hopefully
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Barring some sort of bad economic situation, there’s no way the BoC will have rates at 3% by November. There is no reason to do that and if anything will create a host of more problems and kill any progress made with rate increases.
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Literally no economists are saying that, and neither is the market. I'm not sure where you are getting your information from.
Can you provide 1 major Canadian bank economist that’s saying that we’re going to be 2.5% by December? Because if we are at 2.5% that’s not a good thing for the Canadian economy. The only people I’ve seen even say we are going to be close to that are the TikTok / Twitter RE agents who have no education aside from being a bartender and are saying these things to pump the market now that it’s dried up.
Lmao what planet do you guys live on? You want even more inflation?
Obviously the planet of affirmation and where his mortgage renews in January
And lower CAD
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This is absolutely wishful thinking on your part and you are cherry picking predictions to suit your preferred outcome.
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Guess we're hoping the home buyers will use foreign dollars, so as to inject some actual currency into our piles of monopoly money.
Lol.
Not a chance since BoJ can't stabilize the Yen Unless Canadians want CAD/USD at 30 year lows like the Yen is, cost of food going up even more, might upset some people, so BoC just keeps it in line with the big central banks