In his last interest rate announcement, Bank of Canada governor Stephen Poloz sounded nearly optimistic about our economy, while leaving the overnight lending rate at the 1 per cent economists are expecting it to be for, minimum, the next six months. But this week when speaking to reports before a meeting in Montreal, he still brought that optimistic forecast, but warned that things could become worse down the road.
First, Poloz noted that housing prices in Canada have rebounded after slowing down in recent months. Now that the U.S. Federal Reserve’s bond-buying program is expected to slow down though, it’s pushed Canadians to think about buying now instead of later – before borrowing costs become too much higher.
“This rotation will relieve tension between low demand and household imbalances,” stated Poloz. “Nonetheless, the risks around this base case need to be managed.”
In regards to our own market, he suggested that household borrowing has moderated, if not declined as many were hoping for, and that investment in real estate seems to be “more sustainable” than it once was. These factors, said Poloz, will be what contributes to the “soft landing” our market seems poised for – definitely an optimistic view considering that economists and analysts were expecting the worse just a year ago.
However, not all is set to remain on track for long, Poloz fears. He believes that housing prices could start to climb too high too quickly, and that could “set the stage for a sharp correction down the road. Such a correction would be a risk to both the Canadian economy and our financial system.”
Poloz also stated in his last interest rate announcement that the downside risks to inflation “appear to be greater,” something that would make even the slightest correction feel very sharp.
What do you predict will happen with the housing market in the new year? Do you think 2014 is the year our market will see a big shift? And do you think that shift will have a positive, or negative influence?