October 24, 2007
Interest Rate Changes:
The Bank of Canada kept its benchmark overnight lending rate steady at 4.5% on October 16. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, remains at 4.75 per cent.
The Bank announcement indicated that economic growth has been stronger than previously expected, but will slow next year by more than it projected in July. It emphasized that weakening exports are anticipated to be drag on Canadian economic growth due to slowing U.S. economic growth and a stronger Canadian dollar.
The Bank also said that Canada?s domestic economy remains strong. But that weaker economic growth next year will cause inflation to ease back to the two per cent mid-point of its inflation target. The Bank of Canada sets interest rates in order to contain inflation at between one and three percent.
In line with its new forecast for economic growth and inflation, it said ?the Bank judges, at this time, that the current level of the target for the overnight rate is consistent with achieving the inflation target over the medium term?.
?Financial markets widely anticipated the decision by the Bank of Canada to hold interest rates steady.? For the second time in as many months, interest rate increases. This provides a signal that the outlook for economic growth becomes clearer.? The next rate announcement is scheduled for December 4.
When the bank decided to hold interest rates steady on October 16, the advertised conventional five-year mortgage rate stood at 7.19 per cent ? up 0.24 percent over the peak reached last year. Competition among mortgage lenders remains stiff, which continues to help many borrowers negotiate discounts of one per cent or more off advertised rates.
Consumer confidence edges higher in the third quarter, which is an important factor underlying Canada?s housing market, increased in the third quarter of 2007 compared to the previous quarter. Improving sentiment about household budgets was the largest factor behind the rise in confidence, although positive sentiment about the job market also played a role.
Confidence improved in nearly all provinces, rising sharply in the Atlantic region where it soared to new heights. British Columbia was the only province in which confidence edged lower, due to slightly weaker sentiment about the outlook for household budgets and job growth.
Sentiment about making major purchases, like a house or car, also improved nationally and in all regions except Ontario, where the balance of opinion remains nonetheless supportive for housing demand.
Average Price through national MLS residential prices rose 11.2 per cent year-over-year in August to #305,823. Average price reached the highest level for the month of August in every province, and broke all previous monthly records in Saskatchewan, Prince Edward Island, and Newfoundland and Labrador.
New Listings ? Seasonally adjusted new MLS listings eased by three tenths of one per cent month-over-month to 71,010 units in August ? the fourth highest level on record. A monthly decline in new listings in Ontario, Quebec and British Columbia was offset by additional new listings in all Prairie Provinces. Seasonally adjusted new listings reached the second highest monthly level on record in Alberta.
Easing sales activity left the resale housing market more balanced in August than it was in July. The market was more balanced in every province except Prince Edward Island, and this trend was most pronounced in Saskatchewan and Manitoba.
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