Market Insight for the Week Ending September 20, 2024

Statistics Canada released its latest inflation report on Tuesday, calling it a “turning point” for interest rates and a hopeful sign for the housing market.

The Consumer Price Index (CPI) data highlights a significant shift in inflationary pressures in August, with inflation cooling from 2.5% in July to 2%. The main factor behind this decline, according to Statistics Canada, was a sharp drop in gasoline prices, which fell by 5.1% year-over-year, easing overall price pressures in the economy.

However, housing-related costs continue to put pressure on consumers:

• Mortgage interest costs surged by 18.8% year-over-year.
• Rents have climbed 8.9%, continuing to contribute significantly to inflation since December 2022.

Despite the drop in gasoline prices, elevated housing costs remain a concern for many Canadians.

In a surprising move this week, the U.S. Federal Reserve cut its prime rate by 50 basis points—the first rate cut since the onset of the COVID-19 pandemic in March 2020.

CIBC predicts that the Bank of Canada (BoC) may follow suit with more aggressive rate cuts, potentially leading to a significant drop by December of this year:

• In June, the BoC reduced its interest rate from 5% to 4.75%, marking its first cut in over four years following six consecutive rate holds.
• Another quarter-point cut followed in July, bringing the rate to 4.5%.
• In September, the BoC lowered the key interest rate again to 4.25%.
• For October, CIBC economists and other experts predict another quarter-point cut, bringing the rate to 4%.

In its Economic Forecast report published on September 12, CIBC forecasts a more aggressive approach within the next five months - two 50-basis-point cuts in December and January.

• This could mean a potential drop to 3% by January.
• This outlook contrasts with previous forecasts of gradual 25-basis-point cuts and no pauses along the way to less restrictive rates.

“When inflation is somewhat concerning and interest rates are already moderate, significant economic pain is needed to trigger a major rate drop,” said Shenfeld. “But with inflation soon to be under control and real interest rates still at restrictive levels, there’s no logical reason for central bankers to delay providing relief.”

Shenfeld added that both Canada and the U.S. are experiencing softening job markets, and “cutting rates materially is really a no-brainer.”

The report also noted that accelerated rate cuts would help Canada avoid a recession, given the recent signs of weakness in the labour market. While the cuts would impact housing and other interest-sensitive sectors, their full effect likely won’t be felt until 2026. Canada still faces challenges with upcoming mortgage renewals over the next two years and the ongoing burden of high household debt.

ABOUT BOSLEY REAL ESTATE LTD., BROKERAGE

Bosley Real Estate Ltd. is a full-service, 4th generation brokerage operating since 1928 with offices serving Toronto, Niagara, Waterloo Region, Southern Georgian?Bay, St.Catharines, ?and Northumberland. With over 250 agents in residential and commercial real estate, the firm has built a reputation on trust, respect, and integrity selling and leasing property throughout Ontario. Bosley Real Estate is also recognized internationally through an exclusive affiliation with Leading Real Estate Companies of the World?. This prestigious partnership connects the brokerage to a global network of 130,000 real estate professionals in 70 countries. Headquartered in Midtown Toronto, President, and Broker of Record, Christan Bosley continues to innovate and maintains the high standard of excellence forged over a century.