With the Canadian central bank rumored to be poised to further slash its key interest rate in the next week, may just send the local housing market 'off the charts.' In a recent report from globalnews.ca, there is a need to jolt the economy out of a possible recession scenario with a consequent effect upon the housing market.
According to BMO Chief Economist Dough Porter, through a note issued last Wednesday, "(There is) the very real possibility that the Bank of Canada will pull the trigger." He added that barring a 'miraculous' jobs report by Friday, the odds are 50 to 50 that the interest rates would be further slashed.
Should that occur, Porter then warned that this can only add fuel to an already heated housing market. He added, "A further rate reduction risks inflaming the already raging inferno underway in the housing market. June home sales figures for Toronto and Vancouver were quite simply off the charts."
In an article published on theglobeandmail.com, author Rob Carrick posited the question, does soaring house prices make sense in an economy so weak that it can't gain traction even with rates that are already the lowest many people have ever seen?
The major issue depressing the economy is the low prices of oil and the price continues to fall. Even if both inflation and employment are still considered as manageable, the continued depressed prices of oil, alongside the financial woes in Greece and the slowdown in China, is big trouble in the horizon for the economy.
There is a clear disconnect between the housing prices in certain cities and economic realities. The cities clearly affected by the depressed oil prices, such as Calgary, home sales have fallen by 13.8 percent with the average price declining by 2.1 percent. On the other hand, Vancouver and Toronto, who are only peripherally affected by the oil price slump, has home sales surging by 14.2 percent in June.
The issues in the current housing market will only be further enflamed with the next round of interest rate cuts, unless fundamental issues are resolved within the economy itself.
