Will the rate cut lead to housing correction?

Some commentators are nervous of how the interest rate cut will impact the housing market in the months ahead. Short-term there could be a spike in first time buyers seeking mortgages as the buzz around reduced interest rates piques interest; although lenders have not passed on the full rate cut so far and mortgage rates are already at historic lows. Additional borrowing and the weak Canadian dollar may fuel demand, leading to higher prices especially in Toronto and Vancouver. The potential danger is that mortgage rates will rise along with government bond yields as the US economy grows. That could mean those who stretched household budgets with lower borrowing costs finding themselves over-budget. TD Bank economist Diana Petramala told the Globe and Mail: “We do think that eventually the economic conditions are going to catch up to the housing market and we’ll see a bit of an unwinding of recent strength over the second half of the year, even with the cut in interest rates.”