• The recent mortgage rule changes will materially impact the economy, according to one leading economist.

    The Bank of Canada snuck a little statement about the recent mortgage rule changes into its latest mortgage rate announcement, published Wednesday.

    “While household imbalances continue to rise, these will be mitigated over time by announced changes to housing finance rules,” it said.

    The Bank may be downplaying the potential of the actual impact, however.

    “According to the October Monetary Policy Report, the housing initiatives were expected to dampen 2016 GDP growth by 10 basis points and by 30 basis points next year. Government sources say they expect the growth in housing re-sales to decline 8 percentage points in 2017 from the forecasted 6.0 percent growth pace this year,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres, wrote in a research note. “Private estimates of the negative impact of the new housing measures on overall economic growth vary, but most expect the contractionary effect to be roughly a 30-to-50 basis point reduction in growth over the next twelve months.

    “Given that baseline potential growth is less than 2 percent, this is a very material dampener.”

    The Bank held its benchmark rate at ½% Wednesday, and it remains to be seen what it will target in 2017.

    “Some have suggested that the Bank of Canada might cut interest rates again next year, particularly if housing slows too much. Judging from comments made by the CEO of the CMHC, a slowdown in housing is the intended result of the new rules,” Cooper wrote. “Clearly, Governor Poloz sees the enhanced mortgage stress tests and changes in the insurability of mortgages as mitigating his concerns of overextended homebuyers.

    “It would take a material negative shock to growth for the Bank to cut rates.”

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