To answer this question, we should first understand the inputs policy makers review when deciding the next interest rate change and the sub­sequent impacts on the market and more importantly to the average homeowner—effects on the residential market. Understanding these inputs will not only provide clarity but also lend guidance when making that next real estate investment or on the renewal of your mortgage this year. The inputs I am referring to are economic growth, inflation, our ever-changing Canadian dollar, employment statistics—and let’s not forget our friends south of the border—and their impact on the powers that be with the Bank of Canada (BOC) when deciding Monetary Policy and, ultimately influencing your next decision.

The economic growth rate for Canada was lower than anticipated, primarily due to the strong Canadian dollar and its effect on the demand for exports. The weak export market has caused not only a build-up in inventories, but also a necessary subsequent draw down forcing our manu­facturing sector to lean out production. To a lesser degree, lower demand was also prevalent in the last quarter, primarily in the West and specifically in Alberta, where we saw signs of a cooling housing market. Over the past two years, single-family homes and multi-family condominiums saw 30 per cent year-over-year price growth, skewing the national average of ten per cent.

It is expected the cooling of this market will continue into 2008, where the growth numbers will be closer to the national mean, providing more clarity on the actual demand and supply conditions. Calgary and Edmonton have become much more balanced with respect to the ratio of listings and sales, whereas most of the large markets are beginning to see a tightening and the reversal of this ratio. So what we have is a national housing average that has been assisted by the performance in the East, where resale price growth has shown signs of strength despite the perfor­mance of the west in the last half of 2007.

Employment numbers have been remarkable for 2007 and appear to have the same fundamentals for the upcoming labour market of 2008. Nearly 400,000 jobs were created this past year, attracting many new entrants to the “land of opportunity.” However, not all of these people were successful in finding work. As a result, the unemployment rate actually nudged forward of 0.1 per cent to 5.9 per cent, still at historically lows.

This past December, the Bank of Canada acted proactively by cutting its benchmark over­night rate by 25 basis points, to 4.25 per cent. The monetary authorities believe the down­side risks to economic growth and inflation have increased, due to the problems being faced by the U.S. economy, specifically the housing sector that may have near-term effects in Canada. Add to this a strong currency and its effective drag on exports and we see the need for the policy makers support the market with the easing of rates at this time.

The bottom line in the interest rate forecast for 2008 is that the BOC will most likely hold or call for a further rate decrease in January—and more than likely adopt a stable interest rate environment with the potential for more rate cuts over the next 12 months. This is more of a proactive approach, as they continue to monitor ongoing economic and financial developments here as well as south of the border.