At the recent Jackson Hole Symposium, Federal Reserve (Fed) Chairman Jerome Powell sent an important signal to economic markets around the world when he hinted at a possible rate cut in September.
There is growing interest in how this will affect the Canadian real estate market.
Chairman Powell emphasized that inflationary pressures in the U.S. have diminished and downside risks in the labor market have diminished, making a rate cut more likely.
The Jackson Hole Symposium is an economic policy symposium held annually in Jackson Hole, Wyoming, U.S. With market attention focused on interest rate policy in particular,
Chairman Powell’s comments have a significant impact on the global economy.
How will interest rate cuts affect the Canadian real estate market?
This trend is likely to have important implications for the Canadian real estate market.
Canada’s consumer price index (CPI) rose 2.5% year-over-year in July, the lowest rate of increase in 40 months.
This is close to the Bank of Canada’s target of 2%, raising the possibility of further rate cuts.
The decline in inflation was likely driven by slower growth in travel, tourism, and passenger vehicle prices.
While indicators are improving, housing affordability remains a big problem in Canadian CPI data.
Canada’s population has grown by 1 million people in the last 10 months, creating a significant demand for housing.
The interest portion of housing costs increased by 21% in July, but this was a modest increase compared to previous months.
Despite this, the interest burden remains high.
In the meantime, with no sign of a rate cut from the U.S., Canada’s central bank has made two rate cuts of its own, while the U.S. remains on edge.
Lower interest rates in the U.S. are also expected to be a positive sign for the Canadian real estate market, as it will give the Bank of Canada more leeway to lower rates a bit more.
Lowering interest rates reduces borrowing costs for homebuyers, making it more affordable for them to buy a home, which can lead to price stabilization and a more active market.
With inflationary pressures diminishing, the potential for growth in the Canadian real estate market is likely to increase.
However, despite two recent interest rate cuts in Canada, the Canadian housing market is on a wait-and-see basis in July, so there are many factors to consider when making a real-world investment.