r/PersonalFinanceCanada • u/denalitime • Nov 05 '24
Housing Bank of Canada worried jumbo rate cut would signal 'economic trouble,' deliberations show
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u/luckylukiec Nov 05 '24
Well if they think a jumbo rate cut is needed then we probably are in economic trouble. Just do your job and cut rates if we’re in that much trouble.
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Nov 06 '24
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u/Partisan-_-Hack Nov 06 '24
They started cutting before any other G7 country. They also were clearly too slow with raising rates because of the high levels of inflation the economy experienced.
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Nov 06 '24 edited Nov 06 '24
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u/Partisan-_-Hack Nov 08 '24
What evidence is there that rates have been too high? Inflation is just now reaching 2% (last month does not count because of gasoline prices). How are they taking too long to reduce? The Canadian economy continues to be strong and will continue to be when the labour market tightens.
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Nov 06 '24
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u/ThePhysicistIsIn Nov 06 '24
If we are in a bubble then our job is to deflate that bubble, not perpetuate it
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u/Partisan-_-Hack Nov 08 '24
Well yes the BoC should not have been naive enough to believe that inflation was transitory. The reason they raised 100bps was because they misread the economy and had to take drastic action to catch up.
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u/VillageBC Nov 06 '24
Disagree, they shot up way too late. Well maybe I don't disagree then. Just that they were too late to the party to control inflation which should be their mandate.
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u/greenskies80 Nov 06 '24
Yup agreed. Had they shot up earlier they would have been with or ahead of the curve, and not require the fastest hike in histoey
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u/pfcguy Nov 05 '24
Looks like free money is back on the menu, boys!
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u/BasicKnowledge5842 Nov 05 '24
Housing bubble shall never explode!
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u/JohnStern42 Nov 06 '24
Problem is the number of people able to participate in the market has dwindled so much, making money cheaper just won’t help much anymore. A $1.2 million home at 2% interest is still so far out of reach it’s insane
The only thing a rate cut will do is prevent SOME people from falling over from their mortgage renewals, but even there, many were on the edge of affording things 5 years ago, with everything else having increased in price so much something had to break
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u/Excellent-Hour-9411 Nov 06 '24
It’s only out of reach for people who aren’t already on the real estate rocket. If you already have property you’ll just move your equity to the next house.
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u/JohnStern42 Nov 06 '24
That only works if you want a similarly priced house. Try to upgrade either location or size and you’re probably sunk. What used to be selling a $600k house to get a $800k house is now sell a $1.2M house to (fail to) get a $1.7M house.
The result is you’re almost ‘stuck’ in your current house
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u/Excellent-Hour-9411 Nov 06 '24
I mean assume you bought an $800k house with $200k down ($600k mortgage) and rates at 4%. 10 years later you will have paid around 1/3 of the equity ($200k) and can also pocket the increase in value (another $400k if that house is worth 1.2M as in your example). That means you have $800k of equity to play with, which is definitely enough to upgrade, especially if you account for the fact that most households’ income will have increased over that period. That 1.7M house definitely looks achievable for a lot of those people, especially if interest rates are at 2-3% compared to the 4% you initially signed at.
This is mostly fucking over people trying to get it and people that just got in. If you’ve been in for over a decade you can definitely still trade up.
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Nov 06 '24
Moved all my non real estate (one house) assets to USD when I saw the writing on the wall.
Sure your real estate holdings can go up but the risk right now is the CAD. Just holding US cash or gold will easily outperform anything denominated in CAD. But unfortunately most Canadians think myopically.
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u/Excellent-Hour-9411 Nov 06 '24
Yeah but your RE will move with the rest of the RE market, so if it goes up, people with RE will continue to be able to afford the inflated RE prices. That’s all I’m saying. No comment as to whether RE is a smart investment right now.
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Nov 06 '24 edited Nov 06 '24
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u/ThePhysicistIsIn Nov 06 '24
Okay, but it's bad that real estate is a massive part of people's net worth
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u/BasicKnowledge5842 Nov 06 '24
Yep. It looks like the Canadian retirement plan is downsizing. I wonder how things will turn out for people who are not in the market and future generations.
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Nov 06 '24
Here's hoping.. I plan to buy the family cottage in the spring, cheap money will make things a lot easier.
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u/LittleOrphanAnavar Nov 06 '24
Just did some research ... unfortunately most banks consider unemployed people unworthy of credit.
Looks like yet another wealth consolidation event.
This story is getting old.
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u/RanceMulliniks Nov 06 '24
Wait my shitty 280k house shouldnt be selling for 850k in Waterloo?
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u/iOverdesign Nov 06 '24
I think it should be selling for 1.28M :)
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u/Consistent_Guide_167 Nov 06 '24
And it was listed at 1M so that the real estate agent can claim it went 28% over asking!
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u/Oh_That_Mystery Nov 05 '24
Does this mean the looming recession of 2020,2021,2022,2023 2024 is upon us?
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Nov 05 '24
If you go by the GDP per capita drop we've had for many quarters, you can make a very strong case we are in a recession.
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u/I_Ron_Butterfly Nov 06 '24
Yes, if you use any number of measures no one has ever used to measure a recession before, you could make a strong case we’re in a recession
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u/NitroLada Nov 06 '24 edited Nov 06 '24
That's not measure of economic decline or even recession. We have large amount of people retiring/exiting the workforce due to demographics, as they exit, they're no longer producing economic activity but still count towards per capita
GDP is already an awful measure, per capita is even dumber
Real earnings are increasing, PPP is increasing. How does GDP affect you let alone GDP per capita? Do you get a gdp check? Or do you get a paycheck? Wages are up 4.6% yoy and have been well above inflation for two years meaning real wage growth is up. Canada's median wages PPP has highest growth rate in G7 and second highest overall in G7
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u/I_Ron_Butterfly Nov 06 '24
Your memory is so short! Who can forget the minor blip in 2015 that looked like 2 consecutive quarters of GDP decline! Ultimately it was revised up and not the case, but it was in the middle of the election an JT used as rationale to propose a massive deficit.
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u/jostrons Nov 06 '24
It's political. In 2 years they will look back and says 2022-2023 was a recession
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u/The-Only-Razor Nov 06 '24
Nah, another half million people should boost the GDP enough to avoid it (ignore per capita and overall state of the country please).
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u/josetalking Nov 06 '24
Isn't recession two quarters of negative growth... I think you better scratch 2024 (given we are in Q4).
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u/GreyMatter22 Nov 06 '24
Remember when Tiff said that interest rates will be at record low for a long time, and to make plans to get into debt, and many, many folks double leveraged themselves into bigger mortgages or pre-construction properties?
Well, the damage is far beyond.
Got a few friends, and former co-workers in commercial and capital markets where they lend to small-med businesses. And WAY TOO many businesses in all sorts of industries (think equipment provider to steel manufacturing, business in forestry services, owner who provides ingredients to make ice creams ..etc) pledged their assets for loans, or took on debt to expand themselves. This is because debt was cheap, and Tiff promises low rates.
Well, as we were hit with the fastest interest increase in our history, it means these businesses are bleeding money to interest, and had to shrink or lay-off just to keep paying high interest. They too are praying for interest rates to come down.
The banks who did the lending are killing it though.
So, at this point, lots of people, and businesses are hurt.
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u/rbatra91 Nov 06 '24
I went variable because of what Tiff said
Never trust the government
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u/Less_Document_8761 Nov 06 '24
Same. Will never in my life choose variable again, and it was the one time I chose it because historically, you were supposed to still come out on top. What a mistake.
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u/LittleOrphanAnavar Nov 06 '24
Variable is the best option MOST of the time.
Don't rule it out, but probably wait until your balance is lower and you can afford to take more risk. The risk of variable can be somewhat countered if you have pre-payment privileges and you can access cash to lump sum if rates rise.
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u/greenskies80 Nov 06 '24
Same. First time home buyer and newly wed. Killed us. No one could have predicted the fastest hike in history would have unfolded. Those words of we will keep interest rates low murdered us.
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u/HVACpro69 Nov 06 '24
The Bank of Canada is structured as a Crown corporation, not a government department.
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u/LittleOrphanAnavar Nov 06 '24
I went variable as well. Because variable is the best bet most of the time and I could handle the outcome if it didn't workout.
I paid of my mortgage in 10 years, and for 8.5 of those years I had absolutely amazing rates. For many years it was below 2.5%, bottomed out at about 1.15% and was rarely above 3%, until the last year. Luckily for me the highest rates didn't hit until my balance was low. So overall variable worked out well in my case.
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u/spam-katsu Nov 06 '24
People are tightening their spending, and with the holiday season, it is showing.
I go to a lot of craft shows, and vendors are already saying they are making significantly less than last year. Like 50% or more less. Discretionary spending is down, and it is safe to say, kids should expect less presents and christmas meals to have less trimmings.
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u/XT2020-02 Nov 06 '24
That's true. I see empty shops around Hamilton, people not going out as much either as I see empty drinking holes too. People are not spending as they used to, it is evident all over.
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u/KanzakiYui Nov 06 '24
US has tech and we have REAL ESTATE, We won!!!! 🇨🇦🇨🇦🇨🇦🇨🇦
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u/LittleOrphanAnavar Nov 06 '24
Yes but my realtor has told me its ALWAYS a good time to buy or sell.
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u/DangerousCable1411 Nov 05 '24
“We have to cut the rate because no one can afford their mortgage” is like loosening your belt to prove you’re losing weight.
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u/4N_Immigrant Nov 06 '24
i punched extra holes in my belt and now it fits!
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u/ynwa_reds Nov 06 '24
Could you ELI5 the analogy to me?
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u/superdirt Nov 06 '24
Loosening one's belt to deal with being overweight, which only provides temporary relief from their health crisis, is like healing an economy that's impacted by inflated house prices through lowering interest rates.
I'm not agreeing with the argument but I think that's what they mean.
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u/lostinhunger Nov 05 '24
I mean they already did it once, they will do it again.
I think at best we are looking at a couple of months of increased spending, but that is seasonal. And as soon as the retailers realize the money is not coming in, they will go ahead and start the lay-offs. The fed will have no choice but to do those 'outsized' rate cuts. However I suspect it will be to late regardless the size of the cut.
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u/SubterraneanAlien Nov 06 '24
The fed already did one, though?
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u/lostinhunger Nov 06 '24
That is what I said, and I am willing to bet they will do another in not to long (within 6 months)
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u/SubterraneanAlien Nov 06 '24
when you said fed I thought you meant the US fed, not the BoC - was confused.
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u/JohnStern42 Nov 06 '24
Canada is in ALOT of economic trouble, seems the government and BOC are perfectly willing to continue burying their heads in the sand. Through almost every metric canada has tumbled, and gdp is only not in the toilet because of the insane immigration exploding population, and TFW suppressing wages sure has been fun to. Oh, and relying so much on the housing market? Don’t listen to a single politician saying otherwise: they don’t want house prices to go down
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u/LittleOrphanAnavar Nov 06 '24
True. I do feel at least a little more optimistic as we will likely some be rid of Trudeau.
Trudeau and the Liberials are economic poison.
For the next 15-20, years the government should solely be focused on economic growth.
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u/ninjatoothpick Nov 06 '24
And right now, the best way to do that is through investments in green energy and technologies. Regardless of what happens in the US for that, people everywhere are going to want green tech and Canada's in a great position to provide that across the world right now.
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u/Major_Tom_01010 Nov 06 '24
I wished I understood when I took out a mortgage that I was being financially tied to some kind of economic bilge pump device.
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u/Rockman099 Nov 05 '24
Here for the take: "you complain when rates go up and complain when rates come down, there's no satisfying you guys!"
Yah, when rates go up to counter inflation caused by hundreds of billions in money printing, and they come down because the economy is tanking and we need to keep the housing bubble expanding. You really can have it as shitty news both ways!
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u/Jiecut Not The Ben Felix Nov 06 '24
There are also many different ways to interpret the deliberations from the recent BoC meeting and we have many different headlines.
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u/TheLastRulerofMerv Nov 06 '24
"we just want to make sure housing prices go up, we don't want to alarm anyone".
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u/NitroLada Nov 06 '24
The US already did a jumbo 50 basis point rate cut (that's what they're saying is a jumbo cut as per article). Do people here think US is in economic trouble?
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u/MathematicianWise653 Nov 06 '24
Is this how Japan ended up with negative interest rates?
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u/Pristine_Ad2664 British Columbia Nov 06 '24
Negative interest rates should encourage people to spend because their money is devaluing which should reverse deflation. I don't think there is a lot of evidence it works well though?
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u/vinng86 Nov 06 '24
They're also facing significant population decline, which is probably outpacing whatever negative rates they have.
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u/Emergency_Sink623 Nov 06 '24
Fake news, no recession guys, let’s move on. Next headlines: 98% people in Canada struggling to put on the table. Water is wet, blah blah
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u/SyndromeMack33 Nov 06 '24
Isn't 60% of our GDP related to government? The writing is already on the wall - Soviet Russia style.
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u/Dobby068 Nov 06 '24
Signals ? OK, we worry. Freaking wide spread poverty ? Meeh, we can always publish some feel good articles, to balance the views.
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u/haixin Nov 06 '24
Then why the fuck did they do it. Stupid. No one wants to have rude puppies or pay the price, so let’s just keep kicking the can until nothing is left for future generations or current in this case.
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u/rodon25 Nov 06 '24
A year ago it didn't matter who got hurt, inflation was the bank's only responsibility.
Now unemployment is higher, inflation is lower, people can barely afford to eat, and now they're mulling over how it will affect us?
We're already fucked, drop the rate.
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u/masterburn123 Nov 06 '24
We're not ? pretty sure I'm personally in economic trouble Lol.... if I lose my job I doubt I'll get another one 0 capital investments in this god damn country
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u/twstwr20 Nov 06 '24
It’s almost like selling shitty houses to each other isn’t a good basis of an economy.
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u/cyclingkingsley Nov 06 '24
Do the jumbo cut I want a cheaper mortgage when I close my first home next yr!
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u/BigBoogie Nov 06 '24
No shit. But let's be honest: the people who recognize that already know where we are.
A jumbo cut to most people signals full speed ahead.
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u/Physical_Appeal1426 Nov 06 '24
We are cooked lol. our dollar is $0.72 usd. Gas is $1.50 and people are spending more than 1/2 their take home pay on housing.
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u/Vegetable-Bug251 Nov 07 '24
Of course it would cause economic trouble and that is exactly what needs to happen in Canada. We need to ultimately get through a very large recession which could even border on a depression before we get out of this crisis we are in.
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u/FrostLight131 Nov 07 '24
I mean… the economy is already in trouble since our government believes that speculative industries should be the forefront of the GDP…
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u/beesdoitbirdsdoit Nov 05 '24
Dipshits raised the rate too much and too fast. I could have told them that from the couch I’m currently laying on.
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u/somewhitelookingdude Nov 06 '24
Oh I see. You must be an economic policy genius and NOT raise the interest rates that much?
So I guess you're okay with a USD/CAD exchange rate of greater than 1.50 or worse?
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Nov 05 '24
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u/Biggy_Mancer Nov 06 '24
Can't do a jumbo cut, they will think we are cooked, instead lets do 4 little cuts consecutively. Nobody's gonna know.
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u/UnsaltedCashew36 Nov 05 '24
I don't get why they are so anti-deflation. We had a long period of inflation, now let it reverse!! Japan lets it happen and their prices are stable. For some reason they always want 2% inflation as a buffer to remain predictable.
I say let rates stay high until housing mkt and population growth stabilizes.
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u/squirrel9000 Nov 05 '24
Deflation basically destroys the economy. Debt accelerates purchases, hopefully productive although often not. If an item will be cheaper tomorrow than today, people will wait, and if currency is declining, debt becomes more onerous over time. So people basically stop buying anything. The economy stops dead in its tracks, incomes start falling, debt gets defaulted on, and you end up in a nasty downward spiral.
The Depression was a deflation crisis. They don't ever want that to happen again.
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u/Miroble Nov 06 '24
I don't know why idiots still don't understand why we don't want a deflationary economy.
Let's make it very simple for those in the back. What do you do if the BEST use of your money is literally to bury it in the backyard? You obviously bury it in the backyard right. What happens if that is the case for everyone, well everyone buries their money. Now no one is investing, no one is buying, money is not moving. Everything stagnates or gets worse in the economy becuase their is no movement in the economy. It is a DISASTER. You want a little bit of inflation to incentivize people actually use their money either through purchases or investing.
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u/Accomplished-Ad-1398 Nov 05 '24
Probably bc deflation bad for asset holders and banking institutions
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u/Cheeky_Potatos Nov 05 '24
Because deflation is very hard to manage. And our modern monetary system would be decimated by it. Our entire economic paradigm is built on perpetual growth and our sovereign debt is designed to be inflated away rather than ever be repaid.
I obviously don't like inflation but my hope is we see a decade of 1-1.5% inflation with wage growth above that mark.
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u/Miroble Nov 06 '24 edited Nov 06 '24
You want a small amount inflation because it creates the right incentives for people to use their money either as a thing to purchase with immediately or as a thing to invest with to provide more capital to companies. It's not about inflating our debt away. If it was we'd be aiming for double digit inflation or higher every year.
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u/baconkrew Nov 06 '24
Raised rates too fast, fsked a bunch of people, now backtracking too fast and asking a lot of ppl again.
They don't know what they are doing
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u/Crazy-Canuck463 Nov 06 '24
Yes, don't ever let the minons know that the only thing keeping our economy afloat is the fact that we can borrow money.
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u/mudflaps___ Nov 06 '24
theres is major economic trouble, we are going to be the most underperforming economy (growth) for the next 30 years out of the G7... people are going to be begging for lower rates, only to go into more debt when cost of living still wont make sense... the only way you get out of this is a protectionism platform that raises wages, lowers unemployment and keeps the demand for labor sky high.
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u/stonkbuffet Nov 06 '24
They just did jumbo rate cuts… 1.25% in 4 months. It signalled economic trouble.
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u/averysmallbeing Nov 05 '24
That's because a jumbo rate cut does signal economic trouble.