bank of canada housing market

The Bank of Canada announced it would maintain the key interest rate at one per cent, despite previously warning that a rate hike was inevitable.

In the same monetary policy report, released Wednesday by Governor Stephen Poloz, the central bank tempered its outlook for economic growth to 1.6 per cent this year, 2.3 per cent in 2014 and 2.6 per cent in 2015 before “reaching full capacity around the end of 2015.”

The central bank’s bias toward rate hikes have been in place since April 2013, but in the wake of Wednesday’s surprise announcement, market experts say the bank is just as likely to cut the rate in the future as they are to hike it.

As for Canada’s housing market, the central bank maintains there is still a risk of a correction, stating in the 35-page report:

“The elevated level of household debt and stretched valuations in some segments of the housing market remain an important downside risk to the Canadian economy. The continued slowing in household credit growth and the rise in mortgage interest rates point to a gradual unwinding of household imbalances. However, recent data suggest some risk of renewed momentum in the housing market. This would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on.”

So, ‘go easy on the borrowing,’ remains the bank’s message to the consumer. But as the Globe and Mail points out, this is a warning the bank expects the consumer to heed:

The central bank still says in the most recent report that “household imbalances are expected to unwind gradually,” its lingo for consumers pulling back. And Governor Stephen Poloz said today that he doesn’t see a correction in the absence of a global economic shock. Most economists, too, project a soft landing for the market.

But the central bank is still on alert.

For what it’s worth, the country’s largest banks — Scotiabank, TD and RBC — all seem to agree that the housing market will indeed slowdown next year.

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