Tuesday, October 13, 2009

Bank of Canada May Have to Raise Interest Rates

Amid rapidly increasing prices in real estate in some markets and with some stocks, Bank of Canada Governor Mark Carney may have to reconsider his stance on maintaining low interest rates as a means to keep the economy moving out of the current recession. This according to an article in today's Globe and Mail.
As I have previously stated, one of the by-products stemming from a slowdown in real estate activity is the creation of a pent-up demand for housing once consumer confidence returns. The increased demand often sparks a run-up in pricing and that is already becoming evident in some markets. Clients here in the Collingwood area whose home we have recently sold and are moving back to the GTA, recently lost out on the purchase of a home for which there were 8 competing offers. Ultimately the house sold above the listed price. The Bank of Canada's stance is that surging housing prices will cool down once pent-up demand dissipates as those who were too afraid to buy homes during the peak of the recession now move forward with making their purchases.
The Central Bank's position had been to maintain low interest rates until 2011 however some other countries ie: Australia have moved to increase interest rates as a means to keep inflation in check. This is a situation which will no doubt be watched closely in the coming weeks and should consumers detect an upward movement in rates, this too will perhaps spur greater real estate activity and subsequently higher prices. More to follow....

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