The Bank of Canada has announced that it will not raise interest rates to address concerns of a Canadian housing bubble. Unfortunately for those counting on a .25% base rate, that doesn’t mean rates will stay low indefinitely, just that they won’t be raised immediately to cool the housing market. The BOC points out that too many other sectors of the economy would be impacted by raising rates to cool the market and there are more direct ways to affect only residential real estate.
Finance Minister Jim Flaherty has also mused about such measures, including raising the minimum down payment requirement above five per cent, or reducing the maximum length a house can be amortized from the current 35 years.
Reuters points out the interest choice of David Wolf to make this announcement, his opinion on the matter seems to have shifted dramatically:
Wolf, a former chief economist in Canada for Banc of America Securities-Merrill Lynch, was appointed as adviser at the central bank in April 2009.
When he was still in the private sector, in September 2008, Wolf had warned that the Canadian housing market was headed for a U.S.-style meltdown due to household finances that were in worse shape than in the United States or United Kingdom.
At that time he said his bank feared “it may simply be a matter of time” before home prices start plunging.
At some point in the near future stimulus measures will recede and rates will start to inch back up to historically normal levels. How are you preparing for higher rates? If you hold a mortgage are you locking in or are you counting on the low rates of today continuing for a lot longer? If you’ve got cash, where are you sticking it? Do you hold equities in markets that will be negatively affected by higher rates?
Are you profit taking, loss cutting or bet making? It’s time to get ready for the end of free money.