Breaking News
0

BoC Hikes Rates; Will It Burst Canada's Housing Bubble?

By Callum ThomasMarket OverviewJul 13, 2017 03:08AM ET
www.investing.com/analysis/bank-of-canada-hikes-rates-200200746
BoC Hikes Rates; Will It Burst Canada's Housing Bubble?
By Callum Thomas   |  Jul 13, 2017 03:08AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The Bank of Canada has joined the Fed in embarking on the road to monetary policy normalization, hiking the benchmark monetary policy rate +25bps to 0.75%. This comes at a time as Canada's property market is being increasingly labelled a bubble. Indeed the second chart, below, shows a stark acceleration in property price gains and an increasingly overvalued property market (looking at the OECD housing market valuation indicators). Thus it makes sense that the central bank would reduce monetary policy stimulus in this backdrop.

The risk in this sort of situation is always going to be that the central bank could end up bursting the bubble, and at some point it probably will, but so far this is just a small rate hike and only the beginning of the policy normalization process. As the Bank of Canada further normalizes policy the risk of a bursting of the Canadian housing bubble will rise. Given the importance of Chinese demand, it will also be important to keep tabs on economic conditions in China. At this point the risk assessment for Canada is slightly higher and the outlook is that risks will rise.

The Bank of Canada hiked the benchmark interest rate +25bps to 0.75%, joining the Fed on the path to monetary policy normalization.

Canada - Benchmark Policy Rate
Canada - Benchmark Policy Rate

The Canadian property market is running hot, with price gains accelerating and valuation indicators looking stretched. The valuation indicator is a combination of the OECD price to income and price to rent ratios (compared to history).

Canadian Propery Market Running Hot
Canadian Propery Market Running Hot

BoC Hikes Rates; Will It Burst Canada's Housing Bubble?
 
BoC Hikes Rates; Will It Burst Canada's Housing Bubble?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email