Economics Blog Posts

Economics Blog Posts

The BCREA Blog is a platform for sharing the latest education news, economics statistics, issues relating to the profession and links to valuable resources for REALTORS®, stakeholders and the public.

    • Economics

    BCREA's New Market Intelligence Reports

    Published Jun 29, 2016

    With real estate absorbing a large portion of the media's attention in recent months, BCREA's Economics Team has compiled two research reports to examine market statistics and potentially correct some common misconceptions.

    The narrative that millennials are leaving Vancouver in droves because of high housing costs has become a familiar theme in the media, but is that correct? In April, the Association released its first Market Intelligence Report, Myth of the Retreating Millennial. The report corrects the common misconception that millennials are retreating from Vancouver through an examination of population estimates for the region. The report reveals that millennials are, in fact, not retreating, and that the population aged 20 to 34 years old has actually increased significantly in the city.

    In June, BCREA released a second Market Intelligence Report, What Happens Next to Home Prices? This report examines periods of rapid price acceleration, defined as 20 per cent or higher year-over-year growth, and the fact that an acceleration in prices is generally followed by a reversion of growth back to its long-run average within 12 months. This pattern is far from unusual in Vancouver. In fact, since 1981, there have been 46 months in which prices rose by more than 20 per cent on a year-over-year basis and 38 of those months occurred prior to 2010. 

    The Association's Economics Team plans to produce further Market Intelligence Reports to provide statistical insight on BC's real estate market as media trends surface. To subscribe to receive these reports and additional BCREA publications, click here. For additional economics information, forecasts and statistics, click here.
    • Economics

    Implications of Falling Oil Prices for the BC Housing Market

    Published Feb 05, 2015

    The recent dramatic fall in oil prices has far reaching implications across all facets of the Canadian economy. We have already seen a surprise cut in interest rates from the Bank of Canada, with possibly more to come, as well as a deep decline in the Canadian dollar.

    However, the macroeconomic impacts of lower oil prices will vary for each province with the economies of energy producing provinces suffering while others may benefit from higher disposable incomes and more competitively priced non-energy exports.

    The same can be said for provincial housing markets. As illustration, the chart below compares the impact on MLS® home sales from a 10 per cent decline in oil prices.

    oil and home prices

    The variation in how individual Canadian housing markets react to lower oil prices is perhaps most starkly observed by comparing energy sector dependent cities like Edmonton and Calgary versus that of Vancouver. In contrast to sharp declines in Calgary and Edmonton, in Vancouver, which has little direct exposure to the oil and gas industry, home sales have historically seen a slight increase after a decline in energy prices. This is likely as a result of higher disposable incomes due to a lower gas and home heating costs.  

    That said, not all markets in BC respond to lower energy prices the same way. In the Northern regions of the province, where the local economics are more dependent on energy and other commodities, home sales tend to decline with oil prices. Similarly, regions that benefit from employment and recreational home sales from neighboring Alberta like the Okanagan tend to see a modest decline in activity when oil prices fall.

    • Economics

    Multi-family Housing Expected to Dominate New Home Construction

    Published Dec 11, 2014

    BCREA Long Term Housing Demand ProjectionsAdditionalHousingDemand

    A myriad of factors can impact housing demand. A change in interest rates, the level of employment, wages, taxation and even consumer confidence can have a marked influence on the demand for living space. For example, in a period of relatively weak economic conditions people can refrain from forming new households due to a lack of affordability or fear of falling prices. However, over the long term, population growth is perhaps the most significant indicator of housing demand. The equation is modest; the more people there are, the more households are formed and more housing is demanded. 

    Utilizing population projections from BC Stats, household characteristics from the Census and data concerning the housing stock from the Canada Mortgage and Housing Corporation and Statistics Canada, BCREA's Economics Team has produced estimates of new construction activity to the year 2041 for the Victoria, Vancouver and Kelowna Census Metropolitan Areas, as well as for the province.

    Between 2016 and 2041, the population of BC is expected to grow by nearly 30 per cent, which means that an additional 1.39 million people will call the province home. It's not just the total number of people that is important, but also their relative age. The largest nominal growth is expected to occur in the senior population as the baby boomers become a full shade of grey. Their children, the so-called echo or Y generation, complemented by net international migration will also bolster the 35 to 54 year old age group over the next 25 years.

    Since housing is typically occupied by more than one person, any tally of housing demand needs to include an estimate of future household maintainers by age group applied against the growth in population. Using this approach, the province is estimated to grow by an additional 632,000 households by 2041. Now, one could simply divide by 25 to derive the yearly incremental growth. However, since the change in population by age group isn't linear and thus not in a straight line, household growth is more staggered over time. In addition, household growth in itself doesn't tell us what type of accommodation will be produced.

    Historical trends in the composition of the total housing stock, while illustrative, say little about possible future construction activity because of increasing associated on land supply and the associated acceleration of high density housing production. By applying the recent trend and composition of housing starts against household and population density projections, an estimate of future housing demand can be derived.

    We estimate that between 2016 and 2041 there will be approximately 14,000 to 15,000 additional apartment units in demand per year. While the production of apartment units is expected to remain relatively constant, they are expected to grow from half of all housing demand to 62 per cent by 2041. Semi-detached and row housing demand is also expected to remain in a relatively consistent range of 4,500 to 5,000 units per year, while increasing from 18 to 20 per cent of housing demand in the province. Finally, demand for single-detached homes is estimated to decline from approximately 5,000 to 4,600 units per year through 2041, with their proportion falling from 32 to 18 per cent of total additional housing demand.

    • Economics
    • Statistics

    For Local Housing Markets, One Ratio Does Not Fit All

    Published Jul 25, 2014

    REALTORS®, market analysts and economists frequently describe the housing market as balanced, meaning that the supply of listings and the demand from potential homebuyers is in equilibrium. Measures have been devised over the years as a guidepost for that balance, usually taking the form of the ratio of home sales to new or active listings. The attractiveness of these ratios, in that they are simple to calculate and understand, has meant that analysts often take one-size-fits all type approach when analyzing markets. However, as the popular saying goes, all real estate is local. 

    Of course, housing markets have some common drivers. For example, interest rates are uniform across cities and provinces and are determined based on national factors like inflation and economic growth. However, other market drivers like demographics and income trends have significant variation within a province. This variation, as new research by BCREA economists shows, can lead to very different dynamics when it comes to local housing markets. 

    In particular, our research shows that the commonly used rule-of-thumb for a balanced sales-to-active listings ratio of 15 and 20 per cent does not hold for all markets. In fact, taking "balanced" as meaning home price appreciation in line with inflation, balanced markets are defined by a diverse set of sales-to-active listings thresholds, as outlined in the table below.

    Ultimately, our research confirms that real estate is indeed local and our statistical guideposts for market balance should be updated to reflect differences in market dynamics.

    • Economics

    Posted Five-Year Mortgage Rate Hits Record Low

    Published May 15, 2014

    History was made in the first half of 2014 as some chartered banks lowered their posted five-year mortgage rate (the qualifying rate for high-ratio mortgage approval) to 4.79 per cent, the first time the five-year posted fixed rate has ever been below 5 per cent. Interestingly, this record-breaking move in mortgage rates comes at a time when five-year Government of Canada bond yields are well off their own historical lows. Since bottoming out at just over 1 per cent in the spring of last year, 5-year bond yields have settled in a range of 1.5 to 1.7 per cent through the first five months of 2014.

    The record low mortgage qualifying rate comes at a time when consumer and mortgage credit growth has been slowing. It is therefore likely a product of intense spring-season competition for mortgage loans, particularly among first-time buyers. In addition, the lower rates offer some compensation for recent, though minor, increases to CMHC mortgage insurance premiums.  However, we anticipate that these record-setting rates will be a temporary phenomenon. Indeed, while interest rates have zigged when we forecasted them to zag in the opening months of 2014, positive news on the economy and higher inflation could translate to higher interest rates by the end of the year.

    • Economics

    Interest Rates Heading Lower Again?

    Published Feb 28, 2014
    Improving economic growth, an increase in inflation and the dreaded taper were supposed to send long-term interest rates higher in 2014. Yet, through the first month of the year, Canadian interest rates have plummeted. So what happened?

    A major factor has been a change in the forward guidance relayed by the Bank of Canada. The Bank’s previous rate-tightening bias seems to have been lost in the transition from Marc Carney to Stephen Poloz. Governor Poloz has thus far placed far more weight on persistently low inflation over household imbalances caused by high personal debt burdens and elevated home prices.

    The change in messaging has been remarkably effective at not only arresting the upward movement in long-term rates, but also prompting a significant decline in the Canadian dollar. The latter should begin to put upward pressure on consumer prices relatively soon, which in conjunction with an accelerating economy, may prompt long-term rates higher in the second half of 2014.

    • Economics

    Employment in BC fell in 2013...or did it?

    Published Jan 23, 2014

    In Canada, the benchmark for measuring employment gains and losses is something called the Labour Force Survey (LFS) which, every month, queries households as to their employment status. However, there is another source of employment data that is gathered directly from the payroll data of Canadian firms, called the Survey of Employment, Payrolls, and Hours (SEPH). According to LFS, BC shed roughly 9,000 jobs through October (the most recent data available for SEPH) while SEPH points to a healthy net gain of close to 35,000 jobs. 

    So which one is right?

    Each of these measures has their advantages. The LFS employment number is certainly the more timely. It is released within a week of the end of the month while SEPH is reported with a two-month lag. The timeliness of LFS translates to a greater emphasis on LFS jobs numbers by both the media and financial markets and is therefore the de facto “right” jobs number. On the other hand, SEPH encompasses the entire population of Canadian employers and, unlike the LFS, is not subject to sampling error. Therefore, in some ways the SEPH is actually the more accurate number. That said, SEPH does have some significant gaps such as key demographic data and self-employment.

    Thankfully, these two measures generally agree with regard to employment trends and any deviations between the two are usually temporary. That said, when employment data does diverge, as it has in 2013, discerning the underlying strength or weakness of the provincial labour market can be tricky. Ultimately, neither the LFS or SEPH is necessarily more right than the other and each can offer interesting insights into the economy.

    • Economics

    Where the Jobs Are (and Are Not)

    Published Oct 29, 2013

    The BC labour market in 2013 can be charitably described as sluggish. Through the first nine months of the year, employment is unchanged from 2012. However, employment totals hide significant variation at the industry level. In fact, employment at the industry level is split evenly between eight sectors where jobs have grown and eight sectors where jobs have been lost.

         *FIRE = Financial, Insurance and Real Estate
    Source: BC Stats



    The industries that have created the greatest number of jobs include a mix of high and low-skill occupations. Approximately one-third of job growth has come from typically full-time, high wage sectors like the finance, insurance and real estate (FIRE) and professional, scientific and other technical services, but significant gains have also been recorded in relatively lower-wage service sectors like retail trade and accommodation and food services.  Slowing new home construction has limited gains in construction, while a rebound in the forestry sector seems to be contributing to employment gains.

    Among those industries that have been shedding jobs this year, manufacturing leads the pack though, somewhat surprisingly, healthcare services have also seen a significant decline in jobs. Over half of the over 70,000 jobs lost through September 2013 have come from just those two industries.

    While it looks like employment growth in 2013 will be meagre, we do expect that the economy will improve next year, and employment with it. An improved global economy should help manufacturing employment recover some of this year’s losses and a stronger housing market should give a boost to construction and related industries. Moreover, the decline in healthcare employment is puzzling and seems unsustainable given an aging population. These factors should help push employment higher next year by about 1.5 per cent.

    • Economics

    Checking in with the BC Economy

    Published Sep 11, 2013

    The first half of 2013 is unfolding more or less as forecast. Economic growth has been sub-par for several months and job creation has subsequently lagged. BC consumers have all but closed their wallets, leading to the lowest rate of growth in retail sales since the 2009 recession. However, we are beginning to see encouraging signs that the economy is, if not turning the corner, at least on more solid footing. Home sales are gaining momentum following 12 months of relative weakness. New home construction is on the rise heading into the summer and job growth, while uneven, has shown some modest signs of improvement.  Moreover, a recovery in the US housing market has spurred BC lumber exports into double-digit growth. Using our monthly GDP growth tracking measure, the BC economy is on pace to post a second consecutive year of lacklustre growth in 2013 with provincial GDP expanding by around 1.8 per cent.

    While economic growth in 2013 looks to be disappointing, a number of factors are aligning that should lead to a much-improved economy next year. The two primary drags on the global economy in recent years, a flagging US economy and an ever-in-crisis European economy, are forecast to turn around next year. In particular, the US economy looks to be finally breaking out of its long malaise as the housing market recovers and the drag from budget austerity fades later this year. On the domestic front, after two years of sluggish consumer spending, faster employment and wage growth should put BC households back in the mood to spend. In all, we anticipate these positive trends will push BC economic growth to 2.6 per cent next year.

    • Economics

    Got to Admit It's Getting Better

    Published Jul 19, 2013

    The Vancouver housing market seems to have bottomed out recently following close to a year of very weak demand. Indeed, Beatles fans might recognize the next line of the song quoted in the title of this post is “it can't get no worse”. That refrain is certainly true of the Vancouver market. Until recently home sales were trending at decade lows in per-capita terms with the summer of 2012 standing out as particularly weak. However, demand has picked up considerably since May.


    A number of factors are likely contributing to the recent upward shift in consumer demand. First, the impact of recent increases in mortgage rates might be pulling demand forward as homebuyers rush to lock-in lower rates. Moreover, the impact of last year’s shortening of insurable mortgage amortization is likely weighing far less on the market this year. Finally, recent economic data is pointing to an acceleration of growth in the back half of this year and into 2014. As the economy improves, we expect the housing market to improve along with it.

    • Economics

    Interprovincial Migration: Go East! (But Stop at Alberta)

    Published Jun 27, 2013
    In 2012, BC finished the year with the largest net outflow of inter-provincial migration in over a decade. There are any number of factors that play into a person or family's decision to leave the province, but generally the main reason is jobs and BC has been falling behind other provinces when it comes to creating jobs. 

    Moreover, since neighboring Alberta is leading the country in employment growth, it is no surprise that people are leaving the province to explore greater opportunities right next door. Indeed, unemployment rate differentials between BC and Alberta explain a great deal of observed net inter-provincial migration patterns.



    This outflow of people has an obvious and immediate impact on the local housing market, impacting demand for homes in both the short and long-term. The solution to this problem is straightforward - we need stronger job growth and a stronger economy. Thankfully, help in this regard should be on the way with the economy, of not just BC but of our major trading partners, and is forecast to rebound next year.

    • Economics

    Exploring the Case for a Rate Cut

    Published Apr 29, 2013
    The April 2013 Bank of Canada monetary policy report (MPR) included a significant lowering of the Bank's growth and inflation forecast from their previous projection in January:




    Lower economic growth means that the Bank does not expect the economy to return to its potential (or full-employment) level until sometime in 2015. It's worth noting that the Bank has been consistently optimistic about when the economy's output gap (the difference between economic output produced with fully utilized resources and what the output is currently being produced) will close and indeed, given a lower growth forecast, the output gap is actually widening rather than shrinking. With an expanding output gap and inflation trending well below its two per cent target, it is natural to ask if the next move by the Bank of Canada is a rate cut rather than the rate hike that almost all economists have penciled into their forecasts. Economists tend to evaluate the ‘rightness’ of monetary policy using estimated policy rules. That is, a formula for setting interest rates in a way that is consistent with the goals of the central bank. In the Bank of Canada’s case, that means stabilizing inflation around a target rate of two per cent. Using an interest rate rule that closely matches past Bank of Canada rate-setting behaviour, along with the most recent Bank of Canada forecast, we can see that the interest rate path that gets inflation back to two per cent is still consistent with the next rate move being up.



    Besides that, the Bank is also unlikely to lower interest rates since doing so would run counter to a year of loudly exhorting households to cut back on debt. Instead, the Bank will likely continue to use forward guidance about the need, or lack thereof, for future rate hikes in order to influence long-term rates and the Canadian dollar lower. The combined effect of which should provide continued stimulus to the Canadian economy over the following year.
    • Economics

    How Much Does Chinese Economic Growth Matter to the Vancouver Housing Market?

    Published Mar 12, 2013
    In a recent blog post, economists at the Canadian Conference Board wrote about the strong impact that the Chinese economy has on the Vancouver housing market. The analysis done by the Conference Board suggests that while Chinese GDP is uncorrelated with Vancouver employment, it is correlated with Vancouver housing variables. This would suggest that economic growth in China is not a significant driver of local economic growth, but is a direct driver of the housing market.

    While we agree that the Chinese economy has an impact on the Vancouver market, we would argue that the impact is far less direct than implied by the Conference Board. The British Columbia economy has the greatest exposure to China of any Canadian province, both directly since China is BC's second most important export market, and indirectly via China's impact on commodity prices relevant to BC. Faster growth in China is good for BC and good for Vancouver as higher exports, manufacturing output, and commodity prices drive gains in capital investment, incomes and employment - all of which will in turn spur the housing market.

    What is missing from the Conference Board's post is how large an impact Chinese economic growth might have on Vancouver home prices and sales. One way to discern this impact is to simply let the data speak for itself though a simple Vector Autoregression (VAR) of Chinese GDP growth and real Vancouver home prices and home sales. A VAR allows us to trace the dynamic impact of a shock to the Chinese economy (meaning a positive or negative unexpected change in the rate of GDP growth) without forcing a lot of structure onto the underlying relationship. Running this simple VAR, we can see that the direct quantitative impact appears much smaller than hinted at in the Conference Board's analysis.  

    The above analysis is hardly definitive, but it does suggest that while Chinese growth is certainly a factor to watch given the importance of China to the BC economy, it is far from being the primary driving force behind the Vancouver housing market.
    • Economics

    Tracking the BC Economy - 2012 Real GDP Growth

    Published Mar 06, 2013

    With 12 full months of economic data available, it is time to update BCREA's tracking estimate for 2012 economic growth in BC. As background, provincial economic data is available at an annual level only and with a very long lag. Therefore, the BCREA economics team has developed a monthly growth tracker to estimate monthly growth in BC real GDP. As shown below, our growth measure has accurately captured actual BC real GDP growth over the past decade.

    Looking at our tracking estimate, the BC economy started the year strong, with momentum carrying over from 2011, before sharply decelerating in the back half of 2012. According to our estimate, annual real GDP growth trended under 2 per cent in the fourth quarter of 2012 and averaged 2.3 per cent for all of 2012. We anticipate that slow growth will continue in 2013, with the provincial economy expanding just 2.2 per cent.

    • Economics

    The Myth of the "Hot" Condo Market

    Published Jan 29, 2013

    Over the past four years, policymakers in Ottawa have deemed it necessary to restrain mortgage credit with the most impactful change coming from a shortening of amortizations on high-ratio mortgages from 40 to 25 years. While some tightening of lending standards was prudent in the wake of the US sub-prime fiasco, the rationale provided by the federal government has not always been air-tight, particularly when it comes to Vancouver. When explaining the need for tighter mortgage lending standards, it is common to hear the Finance Minister cite the “overheated” or “red-hot” Toronto and Vancouver condo markets. For those of us that pay attention to the Vancouver condo market, these thermogenic metaphors can be puzzling. Pictured below are condo prices in Vancouver from 2008 to the present, adjusted for consumer price inflation.



    As is clear from the chart, since recovering from the panic of the global financial crisis, inflation adjusted condo prices in Vancouver have actually been trending lower since 2009. The same story holds for condo sales, which cratered during the financial crisis, posted a strong recovery, and have fallen well below pre-crisis levels since.

    An objective look at data clearly shows that the Vancouver condo market has not been “hot” for quite some time. Perhaps it is time for federal policymakers to update their talking points.

    • Economics

    Unprecedented Tranquility in Canadian Mortgage Rates

    Published Jan 04, 2013

    While there were a number of ups and downs in the Canadian mortgage market in 2012, there was very little movement in mortgage rates. In fact, the volatility of mortgage rates, as measured by a rolling 52-week standard deviation of the 5-year fixed rate, reached at least a 32 year low in 2012.

     

    With growth and inflation remaining relatively subdued and the Bank of Canada on the sidelines for much of 2013, the unprecedented low volatility in Canadian mortgage rates is likely to continue for much of the new year.

    • Economics

    BC Economy Grew 2.8 per cent in 2011

    Published Nov 20, 2012

    Statistics Canada’s annual publication of Provincial Economic Accounts was released earlier this week. This publication includes the final estimate of GDP by province for 2011 and so provides a final estimate of economic growth in the provinces. BC real GDP expanded 2.8 per cent in 2011, close to BCREA’s estimate of 2.7 per cent, and a slight deceleration from 2010’s rate of 3.2 per cent.  Household consumption spending accounted for 1.5 per cent of overall growth while business investment accounted for 1.3 per cent. In spite of a strong year for BC exports, the province still had a net trade deficit which subtracted over 1 per cent from real GDP growth.

    BC ranked fourth among the ten Canadian provinces, with resource rich provinces Alberta and Saskatchewan leading the way, posting fairly remarkable growth of 5.1 and 4.9 per cent respectively.  The rankings continue to show a westward shift in the economic engine of Canada, with the four of the top five fastest growing province located in Western Canada.

    • Economics

    The Impact of Changes to Mortgage Rules on BC Home Sales

    Published Oct 01, 2012

    The Federal government has tightened mortgage regulations four times since 2008, with each intervention followed by a sharp decline in home sales. The most recent intervention was implemented in July 2012 and primarily involved a reduction of the maximum Canada Mortgage and Housing Corporation (CMHC) insurable mortgage amortization period from 30 years to 25 years. As with prior interventions, BC home sales have sharply declined in the immediate months following the change in policy.

    There are a myriad of factors influencing the decision to buy or sell a home and the mortgage policy changes the government instituted differed in scope and impact. However, the pattern in the chart above does seem to indicate that the weakness in home sales that followed each tightening of mortgage regulations was not a coincidence. In fact, if we try to extricate the impact of mortgage tightening via multiple regression analysis (controlling for mortgage rates and provincial economic variables), we find a statistically significant and negative immediate impact on homes sales in the order of seven per cent. That is, on average, monthly home sales were seven per cent lower in the month following the change than they would have been absent the implementation of tighter mortgage regulations. Moreover, the effects of tighter mortgage credit tend to persist for many months following the change, deepening in the first few months before fading over time.

    Much of the BC housing market was already softening before the new amortization rules were implemented, but the change clearly gave the market an extra nudge downward. Given decent economic fundamentals, we expect sales to come off current lows as the effects of the policy change fades in coming months. Until then, sales in some parts of the province will likely remain well below seasonal averages.  

    • Economics

    Outlook for Canadian Monetary Policy

    Published Sep 20, 2012

    The Bank of Canada remains caught in a delicate balance. The trajectory of the output gap and the stickiness of consumer prices would under normal conditions, and under conventional monetary economics (see chart below), have pushed the Bank towards tightening interest rates. However, potential interest rate increases have been deferred by a near crisis environment in Europe, a stop-and-go US economy, and perhaps most importantly, the highly indebted position of Canadian households. 

    A slowing global economy and a high dollar continue to exert pressure on Canadian exporters. Furthermore, while the Bank has carefully communicated that US monetary policy will not determine Bank of Canada rate actions, the explicit stance of the US Federal Reserve to keep interest rates low past 2014 does somewhat constrain the Bank’s ability to raise interest rates without putting further upward pressure on the loonie and harming much needed export growth.

    In terms of the domestic economy, the Bank has been consistently exhorting Canadian businesses to spend and households to save. In a best-case scenario, consumers would be de-leveraging while businesses invested in productivity enhancing capital. This would facilitate a necessary shifting of the burden of growth from consumers to Canadian firms.

    A scenario of consumer de-leveraging paired with ramped-up business investment and export growth will require interest rates to remain low. That said, the Bank is also serious about maintaining its mandate of price stability and is increasingly indicating a desire to move rates off of historically low levels. Balancing these objectives will require a delicate fine-tuning of monetary policy which we expect to proceed cautiously, perhaps with a rate-tightening of 25 to 50 basis points beginning in early to mid-2013. A slight increase in interest rates would allow the Bank to signal to households that higher interest rates are on the horizon while still maintaining a substantial degree of monetary stimulus to encourage business investment.

    • Economics

    US Federal Reserve Announces QE3

    Published Sep 14, 2012

    In a widely anticipated move, the US Federal Reserve announced yesterday that it will conduct a third round of quantitative easing (QE). The primary difference between QE3 and the Fed’s previous two quantitative easing programs is that QE3 asset purchases are open-ended and, most importantly, will continue until there is a substantial improvement in US labour market conditions. That is, the Fed has tied the duration of its latest program of asset purchases to an explicit macroeconomic objective. The Fed also extended its commitment to keep its target Federal Funds rate at near zero levels through at least mid-2015.

    The theory underlying quantitative easing is that asset purchases will stimulate the economy by lowering long-term interest rates, including interest rates on mortgage debt, thus encouraging investment while giving a much needed jolt to the US housing market. While the evidence for the impact on growth and employment from past QE programs is mixed, pairing open-ended asset purchases and a commitment to keep interest rates low for an extended period with a specific objective has much support in academic literature.

    The implications of the Fed’s announcement for Canadian interest rates are two-fold. One, the commitment by the Fed to keep interest rates at near zero levels until mid-2015 further constrains the Bank of Canada’s ability to raise interest rates over the same period. Particularly as Canadian exports have already softened under the weight of an appreciating loonie. Second, already low long-term bond yields will likely price-in a continuation of very low short-term rates and will therefore likely remain at historically low levels for an extended period which should keep Canadian mortgage rates well anchored to current historically low levels.