Residential Mortgage Commentary - Affordability and the Bank of Canada

  • First National Financial LP

Real estate and housing affordability have jumped into the spotlight since the last rate announcement by the Bank of Canada.  In speeches and interviews since the January 24th setting Governor Tiff Macklem has been pushing back against the idea that the Bank could help affordability by cutting intertest rates.

In the Monetary Policy Report that came with the last rate announcement the Bank recognized that shelter cost inflation, which includes mortgage interest and rent, are key drivers of "above target inflation", but Macklem says it is beyond the Bank’s control. 

"Monetary policy cannot prevent short-term swings in prices.  Monetary policy cannot solve the underlying structural issues that are behind the lack of housing supply,” Macklem said during a speech on February 6th.

"There are many reasons why: zoning restrictions, delays and uncertainties in the approval processes and shortages of skilled workers. None of these are things monetary policy can address."

The Bank’s current high interest rates do not appear to have quelled the desire for ownership.  For example, January sales in Toronto shot up 37% compared to a year earlier, seemingly, based on the notion that rates are not going up anymore, and are expected to drop later this year.  Although that timing keeps getting pushed back.

The latest GDP and job numbers, which show continued economic growth and lower unemployment, support the Bank's “higher for longer” stance.

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