Canada’s latest employment numbers are widely seen as supporting more interest rate cuts by the Bank of Canada.
The economy shed 1,400 jobs in June and the unemployment rate rose to 6.4%, up 0.2% from May. The loss of about 3,000 full-time jobs was somewhat offset by the addition of about 2,000 part-time positions. Economists are saying the numbers give the BoC more latitude to move ahead with interest rate reductions.
The prospect of lower rates is, of course, appealing to anyone looking to get or renew a mortgage, but reduced interest costs are not likely to improve affordability.
Economist Marc Desormeaux recently ran simulations looking at the impact of some commonly proposed solutions to Canada’s housing affordability problem, including lower interest rates. He found that the decline in interest rates is expected to be moderate in the short term, which will make mortgage payment relief minimal and likely to be offset by increasing housing prices. He also notes that income growth is expected to be modest making the likelihood of improved affordability only moderate, if at all.
Desormeaux also looked at extended amortizations, limiting immigration, a spike in new listings, and recession. All of the scenarios were seen to be minimally effective, and only in the short term.
“Increasing housing supply is the only sustainable long-run solution”, says Desormeaux in his report.