Bank of Canada Rate Cut Is Not a Game Changer
A recent report by TD bank argues that the Bank of Canada's recent rate cut will not have a significant impact on Canada's housing market. This article summarizes the arguments put forth.
The recent report is largely in line with a recent post on this website:
- This Bank of Canada has much more influence on short-term interest rates. The mechanisms of the private market are the primary drivers of change in the 5 year government bond yields. It is these yields that drive fixed mortgage rates, not the overnight rate. All told, the recent rate cut had little effect on the five year bond yield and is unlikely to spur significantly more housing activity
- Banks did not fully match the rate cut, just like last time. That means that, even on the shorter end of the interest rate curve, the reduction in rates is minimal
- Besides, three out of four mortgages are fixed anyway.