Technology Bank Of Canada's Stephen Poloz Suggests Buying A Smaller Home, After Hiking Interest Rates

09:20  16 july  2018
09:20  16 july  2018 Source:   huffingtonpost.ca

Poloz widely expected to raise rate this week

  Poloz widely expected to raise rate this week After waiting for half a year, Stephen Poloz appears ready to get back on his rate-hiking path this week. Recent signals from the Bank of Canada governor, combined with strong economic data, have experts widely predicting Poloz will raise his trend-setting rate Wednesday from its current level of 1.25 per cent.

After Hiking Rates , Bank Of Canada Suggests Buying Smaller Homes . Stephen Poloz , governor of the Bank of Canada , at the G7 Finance Ministers and Central Bank Governors meeting in Whistler, B.C., May 31, 2018.

The governor of the Bank of Canada , Stephen Poloz , had some advice this week for Canadians facing higher housing costs thanks to the Bank ' s interest rate hike : Just buy a smaller house. One (perhaps cynical) way to view his comments is: You're on your own.

a man wearing a suit and tie: Stephen Poloz, governor of the Bank of Canada, at the G7 Finance Ministers and Central Bank Governors meeting in Whistler, B.C., May 31, 2018.© Provided by AOL Inc. Stephen Poloz, governor of the Bank of Canada, at the G7 Finance Ministers and Central Bank Governors meeting in Whistler, B.C., May 31, 2018.

The governor of the Bank of Canada, Stephen Poloz, had some advice this week for Canadians facing higher housing costs thanks to the Bank's interest rate hike: Just buy a smaller house.

"People who don't qualify for a mortgage on the house they wish today have multiple avenues of adjustment," Poloz said during a press conference announcing the rate hike, "one of them being to just go ahead to buy a smaller or less expensive home."

One (perhaps cynical) way to view his comments is: You're on your own. The Bank of Canada isn't going to stop hiking rates to save you money on your mortgage payments.

Bank of Canada expected to resume tightening key interest rate Wednesday

  Bank of Canada expected to resume tightening key interest rate Wednesday The Bank of Canada is widely expected to boost a key interest rate on Wednesday as it resumes efforts to "wean" the economy off low borrowing costs. The bank's target for the overnight rate — what major financial institutions charge each other for one-day loans —   has been at 1.25 per cent since mid-January. Since then, the bank has stood firm on three subsequent rate announcements. That string is generally expected to end this week. As of Tuesday, the implied probability of a rate hike to 1.5 per cent stood at just over 96 per cent, according to Bloomberg.

Bank of Canada Governor Stephen Poloz said last month he is increasingly confident the economy will need less stimulus over time, even as he reiterated labor market slack poses a downside risk. “The ongoing strength in the Canadian economy no longer justifies emergency level interest rates .”

The Bank of Canada , led by governor Stephen Poloz , has hiked its benchmark lending rate to 1.25 per cent. Canada ' s biggest lenders have raised their prime lending rates on the same day the country's central bank moved its benchmark interest rate a quarter percentage point higher.

Watch: Goldman Sachs evaluates Canada's odds of a housing bust (story continues below)

But while Poloz's comments may come off as insensitive — especially to would-be homebuyers who watched affordability deteriorate as the Bank tripled its key lending rate over the past year, to 1.5 per cent from 0.5 per cent — there may some wisdom in what he says.

Because we Canadians sure occupy a lot of space. According to a PricewaterhouseCoopers (PwC) report from 2017, Canadians own, on average, the third-largest homes in the world, behind only Australians and Americans. At nearly 2,000 square feet, our homes as more than twice as large as homes in Britain, despite the fact that our families are no larger than theirs.

a screenshot of a cell phone© Provided by AOL Inc.

It's estimated that the average home size in Canada doubled from the 1970s to 2000, though that trend has levelled off, largely thanks to high land costs in Toronto and Vancouver, which have pushed developers to build smaller homes (as have land use regulations requiring more dense neighbourhoods).

Bank of Canada expected to resume tightening key interest rate Wednesday

  Bank of Canada expected to resume tightening key interest rate Wednesday The Bank of Canada is widely expected to boost a key interest rate on Wednesday as it resumes efforts to "wean" the economy off low borrowing costs. The bank's target for the overnight rate — what major financial institutions charge each other for one-day loans —   has been at 1.25 per cent since mid-January. Since then, the bank has stood firm on three subsequent rate announcements.That string is generally expected to end this week. As of Tuesday, the implied probability of a rate hike to 1.5 per cent stood at just over 96 per cent, according to Bloomberg.

After lifting rates from 1 per cent to 1.25 per cent in January, the bank has held back through three consecutive rate announcements in March, April and May. But BoC watchers believe central bank governor Stephen Poloz is likely gearing up for another hike at the bank ’ s next monetary policy

The effects of U.S. tariffs and tighter mortgage rules will "figure prominently" in the Bank of Canada ' s interest rate decision in July but central bank Governor Stephen Poloz kept markets guessing on Wednesday on whether it would be a hike or a hold.

Excessively large homes are a liability, economically and to the environment. Heating a 2,000-square-foot home in winter, then air conditioning it in summer, makes for very high energy use and a large carbon footprint.

Earlier on HuffPost Canada:

  • Canadian Real Estate To Be Listed On Chinese Amazon-Style Site
  • 1 In 5 Canadian Renter Households Give Half Their Income To The Landlord

And the explosion of sprawling suburban neighbourhoods has eaten up much of the accessible land around our city centres. Developers today, especially in Toronto and Vancouver, say one reason house prices are so high is that land supply is so low. In retrospect, it may not have been such a good idea to surround our cities with low-density, low-population neighbourhoods.

Today, those neighbourhoods are increasingly occupied by aging empty-nesters, often single seniors living alone in giant homes. Even in rapidly-growing cities like Toronto, suburban neighbourhoods are actually shrinking in population.

All this points to the need for better land use, especially if — as is the plan — Canada's population continues to grow rapidly through immigration.

Housing affordability eroded to its worst level in nearly three decades in Canada in the first half of this year. Market theory tells us the best way to reduce home prices is to increase supply. With the increasingly limited space we have, smaller housing units are a practical solution.

Poloz's rate hike doesn't help buyers much, but if it does nudge buyers away from the McMansion lifestyle, we may all be better off in the long run.

This article originally appeared on AMP: HuffPost Canada at https://www.huffingtonpost.ca/2018/07/14/stephen-poloz-smaller-home_a_23481995/

Canadians feel little pain of rate hikes so far .
Canadians feel little pain of rate hikes so farData released on Friday showed retail sales rose 2.0 percent in May and are on track to expand at an annualized pace of about 4 percent in the second quarter, defying predictions that rising interest rates would douse the long consumer boom.

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