Canada still a homebuyer's market despite interest rate hold, tariffs

Summary

We spoke with Adam Jacobs, head researcher at Colliers Canada, about whether it’s worth waiting for more interest rate cuts to buy a home.

Source: Daily Hive

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Q1: What are the current trends in Canada's housing market despite the interest rate hold in 2023?

A1: As of 2023, Canada's housing market remains a homebuyer's market, even with an interest rate hold. Buyers are still relatively favored due to price adjustments and increased housing supply. The Bank of Canada's decision to maintain interest rates has stabilized borrowing costs, which could encourage more buyers to enter the market.

Q2: How do interest rates impact the housing market in Canada?

A2: Interest rates significantly impact the housing market by influencing mortgage affordability and buyer purchasing power. Higher rates can lead to increased monthly payments, discouraging some buyers, while lower rates make borrowing cheaper, potentially boosting demand and driving up prices.

Q3: What role does the neutral rate of interest play in Canada's economic policy?

A3: The neutral rate of interest is crucial in Canada's economic policy as it represents the ideal interest rate that supports maximum economic output without causing inflation. Policymakers use it as a reference to adjust rates, aiming for a balanced approach between economic growth and inflation control.

Q4: What insights does the scholarly article 'Population growth, interest rate, and housing tax in the transitional China' provide regarding interest rates and housing markets?

A4: The article discusses how interest rates and population growth affect housing prices, suggesting that housing tax policies should be tailored to the type of economic shock. It highlights that in cases of interest rate shocks, avoiding housing taxes may be more beneficial to stabilize the market.

Q5: What findings are presented in the research about the effectiveness of interest rate changes versus construction rate regulation in housing markets?

A5: Research indicates that regulating the construction rate is more effective than changing interest rates for maintaining housing market stability. Interest rate hikes can disproportionately affect lower-income groups without significantly impacting middle-class buyers, suggesting a more targeted approach in market regulation.

Q6: How do prime lending rates differ from other interest rates in Canada?

A6: Prime lending rates in Canada are the rates at which banks lend to their most creditworthy customers, often serving as a benchmark for other variable rates. These rates are typically lower than those offered to less creditworthy borrowers, reflecting the reduced lending risk.

Q7: What does the recent research on housing market allocation reveal about market dynamics?

A7: Recent research on housing market allocation shows that market dynamics respect improvement. When a house's value increases, the housing market adjusts to ensure that the owner can either retain the house or receive a better one, maintaining a balance in market transactions.

References:

Interest rate
Population growth, interest rate, and housing tax in the transitional China
A housing-demographic multi-layered nonlinear model to test regulation strategies
The core of housing markets from an agent's perspective: Is it worth sprucing up your home?