DS:
At the macro-level the three most important factors are inflation, inflation, and inflation.
The inflation rate is clearly at the top of the list. Like it or not, rightly or wrongly, the bank of Canada is laser-focused on inflation. Their objective is to keep inflation low and stable. They will defend the value and legitimacy of their own bank notes, at all costs.
That’s a good thing, a crucial function. When that defender of the faith is not defending, then you can end up with all sorts of problems. Look to the economic suffering in Venezuela, Argentina, and Zimbabwe as perfect examples of what not to do.
Certainly, the example of the jobless rate is very important, as well as average wage growth. Growth and general strength in the people’s ability to earn grants effectiveness to their demand for real estate. That is, those that wish to buy are capable of buying. Plus, these metrics are leading indicators for inflation readings, which is the central concern of the Bank of Canada.
The Bank of Canada’s role is not to maximize economic growth, although this “should” be a side-effect. Their role it is not to ensure all segments of the population participate in economic growth, or that the middle-class be protected from possible distress, including foreclosures. The number of people who lose their homes is just a datapoint in the Excel sheets designed to forecast inflation.
Evidence? The Bank’s overnight rate was 0.25% in March 2020 and reached 5% in June 2023, that’s 20x in the space of a little over 3 years, that’s extreme if you want my opinion. That comes with a shock factor, a rapid change in debt servicing costs. That medicine may have gone down a bit easier if administered a bit more slowly.
With that said, I don’t want to sound like a cynic or pessimist, nor do I want to spoil our collective moods. I always try to see the good in any situation. I suspect the bright side here is that rate cuts may have to come a bit more quickly than some expect. Also, I don’t expect that we’ll need to bask in a low-rate environment for a long while before strength returns to the real estate market. It will be enough that interest rate movements become more predictable, therefore less volatile, and of course where those predictions are downward. My impression, based on the paperwork