Agents fear long-term impact of rate cut

by 17 Jul 2015
The Bank of Canada’s move to cut the overnight interest rate was a welcome move for many agents who expect more buyers to jump off the fence but others feel the long-term effects could spell trouble.

“The rate move is an unnecessary show piece,” Les Holdway told REP on the forum. “This will entice the few remaining buyer persons into the Vancouver and Toronto markets that aren't currently over leveraged but what happens when 1/2 a point goes to two, four or six per cent or worse?”

“Probably a third of the market will be critically encumbered.”

The agent’s comments reflect a growing concern that industry professionals feel when it comes to the long-term economic impact the rate cuts will have on the housing market. Most agents are relishing the effects the interest rate will have in the short-term, but long-term, many have reservations.

Phil Soper, president and chief executive officer of Royal LePage, expressed similar concerns in a REP story, saying that while the cut will help big markets like Toronto and Vancouver, demand in smaller markets won’t feel the effects.

“My concern is that the cut won’t be useful in growing demand in slower markets and in Canada’s largest cities," Phil Soper, president and chief executive officer of Royal LePage, told REP. "The current cut was having a strong impact already so you didn’t need to pour gasoline on the fire.

“We were already operating in an ultra-low environment and there’s no reason to tempt fate to where we’ll see a hard correction down the line.”

Soper believes that the Bank of Canada should have held off cutting interest rates to avoid sending home prices even higher. He also said it will have an impact on Canadian lenders as they lower their own prime rates, which controls the pricing of variable-rate mortgages.

“The lower outlook for Canadian growth has increased the downside risks to inflation," said the Bank of Canada in a statement. "While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.”

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