Bank of Canada trying to balance risks, Macklem says
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Another interest rate hike from the Bank of Canada is likely to slow the demand for investment properties throughout the country’s largest cities, experts say.
As of Wednesday, the BoC’s overnight lending rate has risen to 5.0 per cent for the first time since 2001. Housing experts are warning that this heightened interest rate environment is putting additional pressure on Canada’s crowded rental market as demand to buy investment properties has fallen given the escalating costs.
“We’re seeing that it’s just simply not worth it for some landlords to keep their investment properties, or even get into the market, when they’re stretched so thin,” John Martino, founder of New Era Real Estate, told BNN Bloomberg in an interview on Wednesday.
He explained that many owners of investment properties with variable mortgages, and those whose fixed mortgage are up for renewal, are looking to offload their units as they cannot financially keep up with the costs.
“The expenses that come along with carrying a rental property have not kept up with incomes,” Martino noted.
Even those looking to a buy an investment property in this climate will need to have a strong cash flow to do so and take advantage of the ability to buy properties for the first time in quite a while, as we anticipate new highs this time next yea, he added.
“People who can’t come up with an outsized down payment for an investment unit will likely have a harder time holding onto one if they do buy simply because of the rate hikes,” Martino said.
The interest in buying an investment property in some of Canada’s largest cities is declining, Kevin Lee, chief executive officer of the Canadian Home Builders Association (CHBA), told BNN Bloomberg in an interview.
“There’s no question that with higher interest rates the demand for building rental properties has dropped,” he stated.
This creates a shortage of rental units for Canadians, who are already facing a massive housing shortage, Lee added.
“It doesn’t make business sense to build more rental properties in this rate hike environment because there isn’t the financial payoff due to high interest rates, and taxation remains very high” he explained.
He is calling for immediate government intervention. Policies that would help the affordability of Canada’s rental market include removing GST from the construction of purpose-built rental properties and an update on the GST New Housing Rebate thresholds — which have not been changed since 1991, Lee stressed.
“We’re going to need some federal measures here that will make building these units possible, because right now we’re headed in the wrong direction,” he said.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
