Bank of Canada's June rate cut was like bringing a butter knife to a gunfight

financialpost.com:

With national home prices treading water,real estate inventory growing and housing affordability still atrocious, last month’s quarter-point rate cut from the Bank of Canada, while helpful, was the economic equivalent of bringing a butter knife to a gunfight.

Canadian real estate and overleveraged borrowers need a bigger saviour. A measly 25-basis-point drop in average mortgage rates only translates into a little more than two per cent improvement in payment affordability (home buying power). Hence, the psychological boost from the bank’s initial cut of the cycle can only take the market so far.

What real estate really needs is to wake up the sleeping giants — sidelined buyers. And, make no mistake, they’re there. On top of domestic housing demand, Canada has seen its population rise by a record 1.27 million in the 12 months through June 30, 1.06 million in the period before that, and 0.54 million in the 12 months before that.

All told, we’ve added 2.87 million new housing seekers in three years. That’s more than the entire population of Manitoba and Saskatchewan combined, according to official estimates from Statistics Canada.

So, when will rates drop enough to save borrowers’ wallets and keep home prices buoyant?

For all economists know, average mortgage rates might need to drop 100-plus basis points (bps) to counterbalance economic headwinds like rising unemployment.

Since the dawn of inflation targeting, there have been five rate-cut cycles of at least 100 bps (in 2015, the Bank of Canada dropped only 50 bps). It’s an admittedly small sample, but in those instances, it took the central bank 3.2 months, on average, to ease 100 bps.

Typically, when the bank sees reason to cut, there’s ample cause for follow-through.