Will rate cuts prolong Canada's real estate surge?
By Peter Diekmeyer • Bankrate.com

On the other hand, when the American economy catches a cold, the US central bank typically provides medicine, as it did earlier this week when it announced a 75-basis-point cut in its policy rate. That move will provide Canada's central bank room to cut its own policy rate even further than the 25 basis points it announced last week. Central bank rate cuts are crucial for the housing industry because they usually translate to lower mortgage costs down the line, though holders of variable rate mortgages tends to benefit faster than holders of longer term, fixed-rate mortgages.

One threat: stock prices
Another question arising from the recent economic turmoil is the effect that stock price fluctuations may have on the housing market. Last Monday, the benchmark S&P/TSX composite index lost close to 600 points, leaving many investors in a panic. However, after the Fed's and the Bank of Canada's policy rate cuts, the index quickly regained most of its lost ground. Yet even after the bounce back, by mid-week the S&P/TSX was still trading at more than 2,000 points below its 52-week high.

According to one expert, the possibility remains that lower stock prices could one day threaten housing values. "In many Canadian markets, real estate prices have risen so high, particularly in Alberta, British Columbia and Saskatchewan, that it is hard to find real estate investments that are cash flow positive," says Gary Siegle, a regional manager at Invis, Canada's largest mortgage broker. "As a result, some investors could begin to regard cheaper stock prices as a buying opportunity."

Whether that happens or not remains an open question. By and large, forecasters tend to regard Canada's near-term prospects far more favourably than those of our southern neighbour. And if they are right, it's a fair bet that our housing sector will do far better, too.

Peter Diekmeyer is a freelance business and economics writer.