Yahoo Finance Is a Second Rate Hike in 2017 Inevitable?
Markets have put chances of a rate hike from the Bank of Canada in October at 70%. Odds have risen since a July 28 report from Statistics Canada revealed that GDP growth in May beat forecasts. A rate decision is slated to be held in September, but markets have put the odds at around 40% for an early hike. Speeches by Deputy Governor Tim Lane and Governor Stephen Poloz are scheduled for September 18 and 27, respectively.
A Bloomberg report revealed rifts in Ottawa regarding the recent rate hike. Several unnamed officials believed that the rate hike had come too quickly. Concern stemmed from the belief that tightening could roll back consumer spending and trigger an economic downturn. In the first quarter of 2017, household spending was up more than two-thirds of GDP growth. There is also a degree of anxiety when it pertains to the debt-to-income ratio held by Canadians, hovering around all-time highs at 167%.
On August 3, the Toronto Real Estate Board released numbers that demonstrated an 18% decline in house prices from April to July. The average price fell from $919,449 in April to $746,216 in July. Prices are still up 5% from the same period last year, but home sales are down 40.4%. Still, those in the real estate industry are confident that conditions are beginning to normalize and have explained this as a return to a more balanced market.
Bank of Montreal (TSX:BMO)(NYSE:BMO) raised rates on its five-year fixed and five-year ?smart fixed? mortgages by 20 basis points on July 7 before the official rate hike. It also increased its three-year mortgage rate by 10 basis points to 2.64%. After the Bank of Canada rate hike, BMO raised its prime rate to 2.95% along with the other major banks.
BMO chief economist Doug Porter expressed skepticism that declining home prices would lead to a change of direction for the Bank of Canada. He pointed out that the Bank of Canada focuses on general economic trends and that troubles in the Toronto housing market will not reorient policy.
Equitable Group Inc. (TSX:EQB) is a Canadian financial institution that provides residential and commercial real estate financing. The share price has shown stability in the wake of the Bank of Canada decision and is up 24% since the height of the crisis at Home Capital Group Inc. rocked valuations for Canadian lenders. Equitable Group is expected to hold a conference call on August 11 to discuss earnings.
There are bound to be long-term consequences for Canadian consumers during the period of tightening and rate ?normalization? that appears to be underway. However, for the remainder of 2017, general trends for Canadian economic growth are strong. The correction in the housing market has slowed from June to July, suggesting that predictions for a return to a balanced market will come to fruition by the fall.
36-Year Old CEO Bets Over $300 Million on 1 Stock
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Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned.
36-Year Old CEO Bets Over $300 Million on 1 Stock
Iain Butler, Lead Adviser of Stock Advisor Canada, recommended this little tech darling to thousands of loyal members last March... and those that followed his advice are up 127.7% (they've already made 2X their money!).
Not to mention this tiny Eastern Ontario company has already been recommended by both Motley Fool co-founders, David and Tom Gardner, because of its amazing similarity to an "early stage" Amazon.
Find out why Tom Gardner was recently on BNN's Money Talk raving about this company, and how you can read all about it inside Stock Advisor Canada. Click here to unlock all the details about his Canadian rule breaker!
Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned.
