REAL ESTATE PRICES, INFLATION AND BANK RATE

Everybody is wondering about the cost of buying real estate. Affordability is in question especially for the first time buyers. Statistics Canada’s latest inflation report found that prices were just one per cent higher last month compared to a year earlier. The June number followed inflation readings of 1.3 per cent in May and 1.6 per cent in April. In BC, provincial consumer price inflation was 1.7 per cent in the 12 months to June.

Stephen Poloz flagged the risk of higher inflation as one reason the central bank hiked for the first time in seven years. Poloz said he needs to start moving with inflation set to approach his two-per cent target by the middle of next year as output returns to normal after an energy shock, and future move will be guided by the economic data.

TD Bank’s economist James Orlando said ” the Bank of Canada is at risk of raising interest rates too fast due to faith in it’s models. Inflation has yet to bottom and housing is a BIG RISK “. Poloz’s rate hike to 0.75 per cent from 0.5 per cent- undid one of the two 25-basis-point cuts be introduced in 2015 as insurance following the collapse of oil prices.

The central bank will raise the borrowing costs in October, and then twice in 2018 to bring its benchmark rate  to 1.5 per cent, according to the median forecast of sixteen economists in Bloomberg survey. The buyers of real estate should be very shrewd and cautious to take further steps.