(Bloomberg) -- The Bank of Canada stepped up the pace of interest-rate cuts and signaled that the post-pandemic era of high inflation is over.Most Read from BloombergClimate Change Is Killing Buildings in Slow MotionOman Sees an Urban Future Distinct From Dubai and Abu DhabiTransportation Policy Gets Left Behind in Presidential RaceHow Kyiv Became a Leader in Digital Services Amid Wartime StrainDhaka's Revolutionary Makeover Pits Visions of Peace Against VengeancePolicymakers led by Governor Tif
While I like the idea of a lower interest rate, I also wonder what it will do. Will it drive housing prices up? Will it stimulate the economy by encouraging people to take debts and loans?
Did they lower rates to encourage people to take out loans?
Yes. Many people budget the most they can afford in mortgage payments to identify how much to pay for a home. Lower interest rates -> lower mortgage payments per $100K -> more money they can offer for the house -> house prices go up.
Not just “people”, either. Interest rates are the main cost of expanding business activity. Lower interest rates means it’s cheaper to start or expand a business.
Yes. Borrowing $100K just became $500 cheaper for each year the loan is held. With interest compounding over time, this has a much bigger impact the longer the term of the loan (mortgages and business loans are the biggest and longest, generally).
While I like the idea of a lower interest rate, I also wonder what it will do. Will it drive housing prices up? Will it stimulate the economy by encouraging people to take debts and loans?
Did they lower rates to encourage people to take out loans?
It always drive prices higher.
Yes, yes, kinda yes.
Yes. Many people budget the most they can afford in mortgage payments to identify how much to pay for a home. Lower interest rates -> lower mortgage payments per $100K -> more money they can offer for the house -> house prices go up.
Not just “people”, either. Interest rates are the main cost of expanding business activity. Lower interest rates means it’s cheaper to start or expand a business.
Yes. Borrowing $100K just became $500 cheaper for each year the loan is held. With interest compounding over time, this has a much bigger impact the longer the term of the loan (mortgages and business loans are the biggest and longest, generally).