Was the BoC's rate cut enough to spur a housing market revival?

Move was 'like bringing a butter knife to a gunfight', says mortgage strategist

Was the BoC's rate cut enough to spur a housing market revival?

Canadian homebuyers need a "bigger saviour" than the Bank of Canada's recent rate cut, according to mortgage strategist Robert McLister.

The central bank’s decision to lower rates by just 0.25% last month "was the economic equivalent of bringing a butter knife to a gunfight," McLister said.

He argued that a quarter-point drop in mortgage rates translates to only a 2% improvement in homebuying power and won't be enough to wake up "sidelined buyers" who are currently staying out of the market.

The strategist pointed to Canada's recent population growth as a key factor in housing demand. Statistics Canada reported that the country has added 2.87 million new housing seekers in the past three years, surpassing the combined population of Manitoba and Saskatchewan.

McLister suggested that more substantial rate cuts may be necessary to stimulate the market and counteract economic headwinds such as rising unemployment. He noted that historically, it has taken an average of 3.2 months for the Bank of Canada to ease rates by 100 basis points during cutting cycles.

However, he cautioned against relying on history to repeat itself, citing unpredictable inflation as a complicating factor.

"Now, by no means should anyone rely on history repeating and Canadians getting 100 bps of cuts by September," McLister wrote. "It can't be totally ruled out, but inflation is still too unpredictable, as evidenced by last week's disappointing uptick in consumer price index growth."

The strategist also highlighted the importance of upcoming unemployment reports in both Canada and the US as central banks seek reassurance that consumption and price pressures will ease. He notes that despite record immigration levels, full-time employment for the key 25-and-over demographic appears to be peaking in Canada.

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McLister advised borrowers to "batten down the hatches" in case the current rate environment persists longer than expected. However, he anticipates that slowing economic growth will eventually force the Bank of Canada to provide more rate stimulus, whether at the July 24 meeting, the September 4 meeting, or later.

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