Yahoo Finance When interest rates drop, many Canadians are ready to spend big … eventually: Survey
Many Canadians plan to drop serious money on a major purchase if and when interest rates fall, but most of those will wait for more than a single Bank of Canada cut before they pull the trigger, a survey says.
Forty-two per cent of respondents in a quarterly consumer sentiment survey by Dye & Durham (D&D), a legal software firm with headquarters in Toronto, say they are ready to splash cash on a “major purchase” in the wake of rate cuts, and 38 per cent say they’ve held back on a big-ticket item because rates are high.
“It’s clear that many Canadians have been holding back on important purchases due to the high-rate environment, and their patience is wearing thin,” Martha Vallance, D&D’s chief operating officer, said in an email to Yahoo Finance Canada.
The survey shows, however, that a first rate cut wouldn’t generate much spending enthusiasm. Most of those planning a big purchase are waiting for “multiple and/or significant cuts to take place before jumping in,” Vallance says. Only four per cent of respondents say they intend to make a purchase immediately after a rate cut happens, while 14 per cent say they’d wait for “a few” cuts and 18 per cent want to see “significant” cuts.
“That measured sentiment, along with the likelihood that rate cuts will be made gradually by the Bank of Canada, leads us to believe that while people will see the first cut as a turning point, the return to elevated levels of spending will not be immediately drastic and will be less likely to trigger more inflationary pressure,” Vallance said.
A new car (15 per cent), a new home (14 per cent) or embarking on a major renovation project (12 per cent) top the respondents' list of planned purchases should rates decline.
Optimism about a June rate cut In Canada is muted in the survey. Just over 40 per cent of respondents say they don't expect a cut in June. Some 31 per cent say a cut will happen in June, while 28 per cent are unsure. Sixty-five per cent of respondents say interest rate cuts would improve their financial well-being, while 30 per cent say cuts would have no impact. Meanwhile, five per cent say rate cuts would worsen their situation.
Housing optimism
The survey suggests the housing market in particular, which has been cool in recent months, could see expanded activity. A large majority (81 per cent) of respondents say rate cuts will make their mortgage costs more affordable. Some 41 per cent of homeowners say they intend to refinance their mortgage when rates begin to drop.
Seven in 10 respondents say cuts will make new housing stock more affordable, while 66 per cent say existing homes will be more affordable. Nearly as many — 65 per cent — say it will be financially easier to do home renovations.
Read about where homes are most affordable in Canada here
Fourteen per cent of respondents say they intend to buy a new home once rates begin to fall. Among renters, 50 per cent say lower rates would increase the likelihood they will buy a home. That number rises to 70 per cent among younger renters in the 18–34 age cohort.
The survey canvassed 1,516 Canadians between May 7 and 9. D&D notes that "for comparison purposes only, a probability sample of this size has an estimated margin of error of +/- 2.5 percentage points, 19 times out of 20."
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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