Many Canadians plan to drop serious cash on a major purchase if and when interest rates fall, but most will wait for more than a single Bank of Canada cut before pulling the trigger, a survey says.
Forty-two percent of respondents to a quarterly consumer sentiment survey by Dye & Durham (D&D), a Toronto-based software law firm, say they are ready to spend money on a major purchase after the rate cuts, and 38 percent say they’ve held off on a big-ticket item because the fees are high.
It’s clear that many Canadians have been held back on major purchases by the high-rate environment and their patience is wearing thin, Martha Vallance, D&D’s chief operating officer, said in an email to Yahoo Finance Canada.
The survey shows, however, that a cut in the first rate would not generate much enthusiasm for spending. Most those planning a major purchase wait for multiple and/or significant cuts to occur before jumping in, Vallance says. Only four percent of respondents say they intend to make a purchase immediately after a rate cut occurs, while 14 percent say they will wait for some cuts and 18 percent want to see significant cuts.
This cautious sentiment, along with the likelihood that the rate cut will be gradual by the Bank of Canada, leads us to believe that while people will see the first cut as a turning point, a return to high spending levels will not be immediately drastic. and will be less likely to cause more inflationary pressure, Vallance said.
A new car (15 percent), a new house (14 percent) or embarking on a major renovation project (12 percent) top the list of respondents’ planned purchases if rates fall.
Optimism for a June rate cut in Canada is muted in the survey. Just over 40 percent of respondents say they don’t expect a cut in June. About 31 percent say a cut will happen in June, while 28 percent are unsure. Sixty-five percent of respondents say lowering interest rates would improve their financial well-being, while 30 percent say the cuts would have no impact. Meanwhile, five percent say lowering rates would make their situation worse.
Housing optimization
The survey suggests that the housing market in particular, which has been cold in recent months, may see some increased activity. A large majority (81 percent) of respondents say the rate cut will make their mortgage costs more affordable. About 41 percent of homeowners say they intend to refinance their mortgage when rates start to fall.
Seven in 10 respondents say the cuts will make new housing stock more affordable, while 66 percent say existing homes will be more affordable. Almost 65 percent say it will be easier financially to make home renovations.
Fourteen percent of respondents say they intend to buy a new home once rates begin to fall. Among renters, 50 percent say lower rates would make them more likely to buy a home. That number rises to 70 percent among younger renters in the 1834 age group.
The survey polled 1,516 Canadians between May 7 and 9. D&D notes that “just for comparison purposes, a probability sample of this size has an estimated margin of error of +/- 2.5 percentage points, 19 times out of 20.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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