No market crash until …

As Bank of Canada Governor Stephen Poloz defends the BOC’s low interest rates, experts suggest that any correction in the Canadian housing market will hold off until the interest rates rise.

“Although it’s clear that most of Canada's housing markets are priced to perfection, I think that any market crash will be preceded by a material increase in medium-term interest rates, since most Canadians seem to select a three- or five-year fixed rate with a long-term amortization period,” said Jeff Baryshnik, president of Republic Funds.

Indeed, recent research conducted by CIBC found that 57 per cent of respondents would opt for a fixed-rate loan rather than risk volatility with a variable rate. This is up from 48 per cent who said the same last year and just 29 per cent in 2011.

“The poll results confirm what many of our clients are telling us … in today’s housing market, they want the comfort and security of knowing exactly what their mortgage payments will be for the next four or five years,” said Barry Gollom, vice president of CIBC.

In late January, the BoC announced it was lowering its target for the overnight rate by one-quarter of one percentage point to 0.75 per cent. The move, which surprised the industry, was in response to plummeting oil prices.

Poloz has defended the move, saying "central banks are doing their job in a very challenging setting" and "we will do what is necessary to fulfill our inflation-targeting mandate."

Phil Wazonek of Distinctive Realty Services is based in Calgary and said that the current adjustment in the Western province is unusual because of the low cost of money.

He added: “To date that has saved and is saving a lot of people, allowing them to hang onto their real estate longer than in past cycles.”

Baryshnik said: “I think that artificially high valuations will persist as long as artificially low medium-term interest rates, however long (or short) that may endure.”

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