![]() This could use open bidding among agents and/or standardized escalation clauses for the price component of offers. Implement an offer system that eliminates blind bidding in real estate transactions. Rather than being targeted, the breadth and depth of the impact of rate moves have historically prompted policymakers to use macroprudential measures to lean against housing froth. In addition, higher interest rates would likely strengthen the Canadian dollar, providing yet another drag on growth. The economy has yet to return to pre-pandemic levels of activity, and tightening credit conditions will only lengthen the recovery. However, interest rates are a blunt tool and impact more than just housing. They only cooled after the BoC shifted its policy stance back toward tightening (local tax measures and OSFI rules played a role as well). A move here would have an immediate, clear and notable impact to cool housing.Ī recent example is 2015, where two BoC rate cuts set off markets not impacted by the oil shock at that time. Interest rates and the Bank of Canada’s commitment to keep them low for years are arguably the key drivers behind the meteoric surge in home sales and prices across large swathes of the country. The Bank of Canada could hike rates, or at least back off from its commitment to hold policy rates at near-zero until 2023. It's clear that no single measure is perfect. Without making a definitive recommendation, we outline a number of possible measures that are, or should be, on the table for policymakers, some effective and some not. We have been asked by many for views on what policy measures could be used to cool the market. That would dampen the speculation and fear-of-missing-out that those expectations are creating. The action needed today is one that immediately breaks market psychology and the belief that prices will only rise further. According to the latest Mortgage Professionals Canada survey (taken in January/February), expectations for home price gains are the highest in at least a decade while expectations for mortgage rate changes are the lowest in at least a decade ( Chart 2). While development policy has created supply-side issues for a decade or more, and affordability for younger households is always a policy concern, the acute issue today is market psychology. As it stands now, prices are going parabolic across a number of markets ( Chart 1), and the price strength appears to be feeding on itself. We believe policymakers need to act immediately, in some form, to address the home price situation before the market is left exposed to more severe consequences down the road. And, the blind-bidding process in extremely tight markets is adding another layer of upward momentum. The housing market - including residential construction, home renovations, homeownership transfer costs and spending on furniture, as well as home maintenance and repairs - now makes up nearly 28 per cent of Canada’s GDP, Petramala says quoting numbers from Statistics Canada.At the same time, employment has rebounded swiftly in higher-paying industries, while fiscal policy is providing broad support to the economy. “But we also need … a successful economy and businesses that are thriving and hiring, especially coming out of the pandemic.” ![]() “The housing market is obviously valuable and employs a lot of people - and we all need roofs over our heads,” he says. Recent data from Statistics Canada show that, for the first time on record, investment in the housing market is now greater than 50 per cent of all investment in the economy, Kronick adds. While investment in residential real estate ballooned during the pandemic, the level of private capital invested anywhere else declined, says Jeremy Kronick, associate director of research at the C.D. Now, the concern is whether Canada’s economy can fire up other engines of growth if the residential real estate market cools off.
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