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Carney prepared to raise rates ... and landlord hopes

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guest | 25 Apr 2012, 08:33 PM Agree 0

While this week Bank governor Mark Carney told MPs in Otttawa that he welcomes recent numbers suggesting rising household debt has begun to stall, he also indicated the BoC will move to raise rates sooner than later if necessary.
Due to “reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the two per cent inflation target over the medium term,” he told the House of Commons committee.
His comments come as global markets still struggle to find their footing and the U.S. unemployment numbers have only begun to moderate.
Still, the rate at which consumers take on new debt is declining sharply, Carney told MPs.
At the same time, household debt had kept growing despite the weak economy, in large part because of the low interest rates Carney’s own monetary policy promoted. Any move to further apply the brakes with a rate increase would likely accrue to the benefit of landlords as renters stay put instead of entering the housing market.
Carney is suggesting he is ready and willing to put his foot down to protect consumers.
With the average debt at 151 per cent of disposable income, Canadian households remain in peril.
"New debt is locking in,” he said Tuesday. “The question is whether existing debt is doing the same."
  • Paul Kondakos | 26 Apr 2012, 09:46 PM Agree 0
    As a landlord myself, you have to remember that increasing interest rates cut both ways. Yes, rising rates tend to have the effect of discouraging home buyers from entering the market and in effect they remain as renters keeping vacancy rates near all time lows.

    However, on the flip side, as a landlord, I am always looking for new leveraged investment opportunities and rising rates dig into profitablitly.

    With vacancy rates already extremely low across Canada, and more specifically Ontario where I own a number of multi-unit residential properties which are currently fully tenanted, I prefer rates to stay as low as possible so that I can continue to acquire more properties at these low rates.

    Of course there is the argument that the market cap compression going on right now is a function of the ultra low interest rate environment we've been enjoying lately, but that discussion is better left for another time.
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