A surprisingly soft inflation report is fuelling bets that the Bank of Canada will cut deep next week. With even more trims to its key lending rate expected over the next several months, potential homebuyers are playing the waiting game. Below, we look at the risks and rewards of biding your time. But first:
In the news
Getting frosty: What Canada’s diplomatic row with India means for an already underperforming trade relationship.
Making peace: Dye & Durham has cut a deal with one activist investor. But two more dissidents remain.
Going nuclear: Google has ordered small modular nuclear reactors for its data centres, as one does.
Happening today
- Canadian housing starts for September and manufacturing sales for August.
- British consumer price index for September, year over year. Today I learned hereditary aristocrats still sit in the House of Lords.
- Earnings include Kinder Morgan and Morgan Stanley. Big day for Morgans.
The consumer price index rose at an annual rate of 1.6 per cent in September, down from a 2-per-cent pace in August, Statistics Canada said.The Canadian Press
Economy
The inflation fight is over. Now what?
Canada’s inflation rate dropped below 2 per cent in September for the first time in more than three years, the latest sign of price stability that potentially tips the Bank of Canada to a larger interest-rate cut next week, Matt Lundy reports.
- “The inflation fight is effectively over, a milestone for the Canadian economy after CPI growth peaked in 2022, prompting central bankers to jack up interest rates to cool demand.”
The bank’s next battle ...
... is making sure inflation doesn’t undershoot its 2-per-cent target for a prolonged period. If consumers expect the pace of prices to slow, they’ll put off buying goods and services. (And homes. More on that below.)
- Money kept out of the marketplace drags down businesses, which then react by laying off employees or reducing their salaries, and so on. To put it in extremely technical terms: A spiral of badness.
- But it’s just one month, as Lundy notes, and the central bank is unlikely to be alarmed. But it has stressed that economic activity needs to pick up “to ensure this doesn’t become a trend.”
In a note to clients, Royce Mendes, head of macro strategy at Desjardins Securities, said the bank needs to take action in its next rate decision on Oct. 23. “The Bank of Canada needs to do something to revive the economy and stop inflation from falling too far,” he wrote. “Our view is that a 50-basis-point rate cut is the right dose of medicine.”
"For Sale" signs: So hot right now.The Canadian Press
In focus
The waiting game
If you’re in the market for a home, chances are you’re not really in the market for a home. You’re watching. Waiting. Perhaps refreshing your real-estate app of choice more frequently.
That makes sense: Why would you buy into the market now when you know more lending-rate cuts are on the way? That inflation report we just considered is driving up the odds of a 50-basis-point rate cut from the Bank of Canada next Wednesday, and economists expect the bank to continue cutting through the next several months. But is there a risk in waiting too long? Let’s look:
Building momentum
The Canadian Real Estate Association downgraded its housing market forecast for the rest of the year, but projected sales to finally come alive in 2025.
The national housing market will remain in “more of a holding pattern” until next spring, the industry group said in a report yesterday. Homebuyers are likely waiting on the more cuts to come, and new mortgage rules aimed at making ownership more accessible don’t kick in until Dec. 15.
The risk of a rush
CREA expects lower interest rates and relaxed mortgage rules will finally bring homebuyers off the sidelines. But where do they all go? A flood of new demand could outstrip inventory; as a result, buyers bid each other up to higher prices.
- CREA forecasts that the average home price across the country will reach $713,375 next year. That would be 4.4 per cent higher than this year.
- As Rachelle Younglai recently reported, first-time homebuyers are already bracing for higher prices.
And lower mortgage rates “might just ignite the market,” personal finance columnist Rob Carrick told me. “Not a done deal, but it seems very possible.”
So, is there a sweet spot?
For buyers, we might be in it now. More homeowners are putting their properties up for sale, the report found. New listings rose 4.9 per cent from August to September with a large increase in the Toronto region, the country’s biggest real estate market.
A rise in new listings, steady home prices and “hardly any competition” suggest strong negotiating power, Younglai told me.
On the agenda
Today at 1 p.m., Globe journalists will answer your questions on our first-ever Big Guide to Canadian Credit Cards. Globe and Mail subscribers can ask a question or leave a comment. Registered non-subscribers can view the questions and responses. Submit a question here.
Charted
A low point for luxury brands?
French luxury giant LVMH reported a 3 per cent fall in third-quarter sales yesterday, undershooting estimates in its first decline in quarterly sales since the pandemic as demand in China and Japan weakened. The sales report, the first of the quarter from the large luxury companies, comes after a roller coaster for luxury stocks in recent weeks, as stimulus measures in China briefly fuelled hopes of a recovery. Chinese consumer confidence has slumped to the all-time lows of the COVID-19 era, LVMH Chief Financial Officer Jean-Jacques Guiony said on an analyst call.
Morning markets
Global markets were lower as investors paused to consider the latest corporate earnings and reassess their appetite for risk. Wall Street futures were little changed after yesterday’s declines, while TSX futures edge higher, driven by gains in metal prices.
Overseas, the pan-European STOXX 600 was down 0.33 per cent in morning trading. Britain’s FTSE 100 advanced 0.68 per cent, Germany’s DAX slid 0.31 per cent and France’s CAC 40 retreated 0.59 per cent.
In Asia, Japan’s Nikkei closed 1.83 per cent lower, while Hong Kong’s Hang Seng gave back 0.16 per cent.
The Canadian dollar traded at 72.53 U.S. cents.
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