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Interest rate rises will start to affect cooler markets says BMO

CIBC: Expect two rate rises in the next 3 months

by Steve Randall05 Oct 2018

Homeowners could be facing two interest rate rises in the coming months according to an updated forecast.

CIBC Capital Markets said Thursday that it was already expecting a rate rise in October due to anticipation that a NAFTA deal would happen. The agreement of the next-gen trade deal USMCA supports the earlier forecast.

However, economists are now calling for a further rate rise in January 2019, slightly earlier than it had been forecasting. That’s due to recent positive data points.

The good news for homeowners with mortgages is that, following those two rate rises within three months, CIBC Capital Markets believes there will need to be a “prolonged pause” by the BoC due to the “elevated sensitivity of households” to the interest rate hikes.

The outlook also forecasts that the Canadian dollar will strengthen over the next six months or so before easing back to the low 1.30s against the greenback by mid-2019.

Challenges ahead for the economy
CIBC economists Andrew Grantham and Royce Mendes have posted their economic outlook for the coming years and highlighted some challenges.

These include rising mortgage rates, attracting and retaining talent, and a US slowdown by 2020.

Provincially, Alberta is expected to see stronger growth in 2018 than previously predicted due to a resurgence of oil production.

BC is set for weaker growth than expected due to the slowdown in the housing market, which is a key driver of growth in the province. The economists note that there has been a more pronounced slowdown in the BC housing market activity than in Ontario and not much of a rebound so far.

The outlook also suggests a slowdown in consumer spending in BC and Ontario as the provinces see the biggest impact from rising interest rates.

The report highlights that 5-year mortgages will be renewed at higher rates for the first time in a generation.

Interest rate rises will start to affect cooler markets says BMO

by Steve Randall23 Mar 2018

Affordability in Canada’s housing markets is generally very good but interest rate increases could start to change that.

BMO’s Spring Housing Affordability Report also reveals the influence that Millennials have on the markets in Toronto and Vancouver, but also in those outside these hot markets as they seek more affordable options.

However, this influence is set to decline in the next decade, the report says, as the baby boomer homebuying era did in the late 90s.

"Millennial buyers and international migrants are cushioning the decline in detached home prices in the hottest markets," said Sal Guatieri, Senior Economist, BMO Capital Markets. "We expect millennials to also bolster other markets like Montreal and Ottawa, as those looking for better affordability consider options beyond Toronto and Vancouver."

He added that interest rates are likely to rise 50 points in this calendar year, with the additional costs eroding affordability in those markets that have not been affected by the tighter mortgage regulations and other cooling measures.

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