Thursday, June 2, 2011

Brokers react to Central Bank rate

The Bank of Canada will keep its pivotal overnight interest rates unchanged at one per cent, with governor Mark Carney once again refusing to pinpoint when exactly he’ll nudge it upward.

Tuesday’s move – or rather, the absence of a move – is the sixth consecutive interest rate setting where Carney has maintained the status quo.

He suggested that global economic risks remain in place, although Canada’s recovery continues to chug along.

Inflation’s rise above three per cent – a rate that many economists thought would set off an interest rate hike – should readjust to two per cent by the middle of next year, said Carney, in Tuesday’s decision statement.

Brokers reaction to the announcement was muted, although largely positive.

“It may assist business a little bit,” Bob Smith, owner of Verico K-W Mortgage, told MortgageBrokerNews.ca. “Had they moved up the rate, it would have further dimmed the outlook for the rest of the year.”

Smith’s brokerage is already grappling with a 10-per cent volume drop from last year’s busy spring season. He wants Carney to hold the rate steady for the rest of 2011, although, like most brokers, expects a move may come as early as the fall.

The Central Bank isn’t tipping its hand, although today’s reprieve will last until the next rate review announcement on July 19.

Still, extending the current rock-bottom rates may do little to encourage the housing market to pick up speed, said another broker.

“Keeping prime at the current rate isn’t going to counteract the many changes that have come into effect over the last year,” Mark Fidgett, owner of Verico Not A Penny Down Mortgages, told MortgageBrokerNews.ca ahead of the announcement. “But I do think it will have a more positive effect than raising the rates and getting people interested in buying that way.”

There’s increasing indication that many prospective homebuyers have already made their move, buying ahead of tougher qualifying terms brought in by the federal government in April 2010 and March and April of this year. Simply put, say analysts, there are fewer buyers left to jump off the fence, something reflected in the uptick in business for brokers just ahead of each rule change.
Ironically, said Smith, prolonging the low interest rate could conceivably frustrate originations in his market. "There’s some hesitancy with people who are in a cash postion and ready to buy because they're holding out for lower prices," the broker said Tuesday." But they may find themselves in a catch-22 situation because of the low rates with sellers less likely to drop their prices."

No comments:

Post a Comment