Bank of Canada Cuts by 50 Basis Points to ‘Stick the Landing’
Bank of Canada Cuts by 50 Basis Points to ‘Stick the Landing’
finance.yahoo.com
Bank of Canada Cuts 50 Basis Points to ‘Stick the Landing’
10 comments
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While I like the idea of a lower interest rate, I also wonder what it will do. Will it drive housing prices up? Will it stimulate the economy by encouraging people to take debts and loans?
Did they lower rates to encourage people to take out loans?
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Yes, yes, kinda yes.
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- Yes. Many people budget the most they can afford in mortgage payments to identify how much to pay for a home. Lower interest rates -> lower mortgage payments per $100K -> more money they can offer for the house -> house prices go up.
- Not just "people", either. Interest rates are the main cost of expanding business activity. Lower interest rates means it's cheaper to start or expand a business.
- Yes. Borrowing $100K just became $500 cheaper for each year the loan is held. With interest compounding over time, this has a much bigger impact the longer the term of the loan (mortgages and business loans are the biggest and longest, generally).
10 comments
I'm surprised but not really.
This is what was meant by the inflation is transitory line, the timelines are just much longer and the effect is more painful than people expect.
I'm hoping this injects some serious stimulus into the housing construction industry to boost housing supply, but I would have liked to see the government offering direct low interest loans or even construction bonds with tight default rules or co-ownership stipulations.
Stimulus in way of rising housing prices where affordability becomes harder and harder to reach for the masses, yes it will. But we've seen this for the last 15 years. It ain't the interest rates that'll boost supply to solve our housing problem. It's the supply constraints - ie labour, red tape including building restrictions, nimby, air b&b etc that are holding things back.
Yeah, they're not going to be affordable, but more supply is more supply in a shortage.
I'm on board with easing constraints so long as homes are built soundly and owners aren't left holding an expensive crumbling house.