Bank of Canada is now less concerned rate cuts will drive up home prices

globalnews.ca:

The Bank of Canada is now less concerned about home prices spiking as it lowers its benchmark interest rate, minutes from the governing council’s latest meeting show.

Deliberations from the July 24 meeting, where the central bank delivered its second consecutive quarter-point rate cut, were published on Wednesday.

The Bank of Canada’s top monetary policymakers discussed risks to the inflation outlook and the broader Canadian economy, the minutes show, including the pace of immigration, wage pressures and the housing market.

Previous deliberations have shown the governing council was keeping a close eye on housing activity as it edged towards a lower policy rate, fearing sudden cuts to borrowing costs could drive home prices higher and risk progress made to date in taming inflation.

But the latest release shows such worries have ebbed.

The governing council did acknowledge that declining mortgage rates or higher-than-expected population growth could drive demand higher in the housing market, and that delays in building homes could limit the growth of supply.

“Nonetheless, concerns had decreased that pent-up demand would lead to a sudden rise in house prices with cuts in the policy interest rate,” the deliberations read.

Reaction in the housing market to the first two interest rate cuts of the cycle in June and July has been somewhat muted with a small uptick in sales reported in some markets. The deliberations show that resale activity has been “slower than expected” from the central bank’s point of view.

Despite hopes for residential building investment to “increase substantially” next year, the governing council suggested in the minutes that “the imbalance between demand and supply was likely to persist for sometime,”