Rates Going Up? | General financial discussion | Discussion forum

lifeonanisland said
But I'm getting used to the idea of a substantial drop in home prices, and a 60 cent dollar.

Why do you believe that there will be a substantial drop in home prices? Do you foresee a reduction in demand or increase in supply?

There is nothing wrong with using principal residence CG exemption as a long term savings for retirement. What must be curbed and totally eliminate is people flipping houses after living in it for short periods of time and then sell for a profit shielding the capital gain. And make vacancy tax 1% a month with immediate payment and no cap will discourage speculation in real estate to help bring prices down.

And yes I think BoC drop rates way too quick too soon in almost a panic mode, effectively tanking the Canadian dollar and add inflation or even worse stagflation ??

That is not how it works currently and no government would survive such a tactic. The most likely scenario would be a sales (or deemed sales) transaction to trigger actual cap gains taxes, and the introduction of cap gains on principal residences would most likely use current FMV as the cost base, so that only future gains would be taxed upon 'disposition'. That is an equitable way to level the playing field.

The G&M (subscribers only) just published its annual* 2025 set of charts (65 of them) from a wide variety of business, academic and corporate sources. https://www.theglobeandmail.com/business/article-from-tariffs-to-immigration-to-housing-experts-pick-the-big-charts-to/?utm_medium=email&utm_source=Business%20Brief&utm_content=2025-1-10_7&utm_term=Business%20Brief%3A%20Experts%20choose%20charts%20to%20watch%20in%202025&utm_campaign=newsletter&cu_id=Q8RvGKY792WRonw7uy%2BiXlsO6IS7G1%2Bu

Many of the charts are eye openers in terms of how badly Canada is faring. Of OECD countries, Canada has the very worst "investment in dwellings vs intellectual property products" ratio of gross fixed capital formation. Canada has 25.7% more investment going to dwellings than IP products. The US is at -8.1% ratio meaning more capital going to value added business, technological, innovation, R&D, et al than to dwellings. That chart was generated by David Watt, Watt Strategic Economic Advisors

* I keep these annual set of charts bookmarked for future reference.

Added later - bonus: Forecast interest rates may actually rise later in 2025 due to underlying pressure in wholesale price increases of the past 6 months and wage increases. BoC could be behind the 8 ball on this one as they may be tempted to reduce overnight rates another 50-75 bp through Jan-June of this year as a result of our economy stalling (for a variety of reasons), but may have to reverse course and start raising them again the last half of 2025 when CPI ticks back up measurably above 2%.

It is less about additional tax revenue generation than it is about re-balancing (re-directing) more capital investment into more value added parts of the economy. The G&M charts I mentioned earlier overall show a stunning revelation of Canada's ongoing fall in competitive position over the past 10 years.

UkrainianDude said

This how it’s done across the border.

I honestly do not understand why when you sold your REIT you have to pay capital gain tax. But when you sold your house you do not. It is not like Canada is running a budget surplus and don’t need that extra money.  

Sure, fine. Tax me on profit of my principal residence sale, but instead I want retroactive refund of taxes on my mortgage interest payments, which are tax deductible in the USA but not in Canada.

Let me see: principal with mortgage at 7% (my case for my first house), for say 20 years, at income tax rate of about 40%.
It seems I'll be getting back more than half of what I paid for my first house. Direct deposit is fine.

AltaRed said
...
As an aside, I think it was a Rob Carrick article (could be mistaken) in the G&M advocating dropping the federal capital gains inclusion rate to 33%, but as a quid pro quo, to start including principal residences in the assets subject to CG tax. It is the right thing to do disincentivize folks from using a principal residence as a tax free investment haven (retirement plan), and instead start putting more money to work in the market economy. Canada has a disproportionate portion of its economy tied up in residential real estate that really adds little to Canada's GDP.  

Alexandre said

AltaRed said

As an aside, I think it was a Rob Carrick article (could be mistaken) in the G&M advocating dropping the federal capital gains inclusion rate to 33%, but as a quid pro quo, to start including principal residences in the assets subject to CG tax.

We go that road, and in a few years some other bright mind will come with an idea of unrealized capital gain tax on principal residence. Seem fair: if you bough your house 25 years ago for $200,000 and it is $2,000,000 now - pay taxes on profits even if you don't sell your house.
That will surely give a jolt to real estate market.  

UkrainianDude said

This how it’s done across the border.
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home provides rules and worksheets.

I honestly do not understand why when you sold your REIT you have to pay capital gain tax. But when you sold your house you do not. It is not like Canada is running a budget surplus and don’t need that extra money.  

Interesting discussions BUT these ideas are shortsighted. There are pros and cons to the US vs CA systems; trade-offs. CG on unrealized gains is the worst, in ANY form! PERIOD!

Curbing too much foreign investment and tying up real-estate is one of the big issues, driven by unhinged immigration policies., driving up demand, with a lot of mediocre-skilled labour, so the economy struggles; and many other asundry related issues.

smayer97 said
Also, keep in mind that rate changes are driven by the MARKET FIRST! They read the tea-leaves and see the conditions just like the CBs do, and anticipate and move the market accordingly. The CBs are most often simply playing follow the leader, spinning tales to make it look like they are driving the market... this is objectively seen by watching the headlines and charts closely; CBs are followers, plain and simple, in spite of the tale-spinning talking points.  

Are rates not driven by inflation in Canada (They should be concerned by job market like the US) and Inflation and Job market in the US (dual mandate)?
Because no one knows what the markets will do tomorrow correct? (as per Warren Buffet)

smayer97 said
Also, keep in mind that rate changes are driven by the MARKET FIRST! They read the tea-leaves and see the conditions just like the CBs do, and anticipate and move the market accordingly. The CBs are most often simply playing follow the leader, spinning tales to make it look like they are driving the market... this is objectively seen by watching the headlines and charts closely; CBs are followers, plain and simple, in spite of the tale-spinning talking points.

No, the rates changes are not driven by the market. That's just your lack of understanding.

As many people have explained already, central banks wait until certain days of the year to change their rates. Bond traders don't wait until those dates. The traders watch the same things the central banks say they watch and react immediately to anticipate what the central bank will do on the next rate date.

Are you going to start posting equally flawed statements that stock prices actually drive company earnings? After all, stock prices seem to fall before companies announce lower quarterly earnings and rise before they announce higher quarterly earnings.

Central banks are not businesses as you also wrote before. Maybe you should start learning about what central banks are and what the bond markets are instead of just watching two lines on a graph.

We will likely see a crash in the Canadian dollar and no more rate cuts in the U.S. I think a U.S rate hike by the end of the year is a possibility.