OTTAWA — Slashing interest rates and printing wads of money may have saved the global economy from catastrophe, but taking back all the monetary candy opens the world to new risks, the Bank of Canada warns in a research paper.

The paper, written by economists Eric Santor and Lena Suchanek as part of the institution’s quarterly Bank of Canada Review, says efforts to stimulate the economy through the 2008-09 recession appear to have worked but risk remains.

“Exiting too soon could undermine the recovery, while too slow an exit could lead to excess liquidity and contribute to inflationary pressures,” they write.

The economists also make clear the successes so far have not come without costs — mostly punishing savers by pushing down interest rates and yields on safe investments, such as government bonds.

The paper appears more directed at central bank policies in hard-hit economies such as Europe, Japan and the U.S., which radically increased the money supply through a policy known as quantitative easing.

The Bank of Canada never took that step, but did slash interest rates to close to zero in 2009 and still retains a super-low overnight rate of one per cent.

In a report issued Wednesday by the C.D. Howe Institute, former Bank of Canada special adviser Paul Masson argued that it was time for Canada’s central bank to start hiking interest rates.

He cited some of the same risks to keeping rates low for long periods as the new Bank of Canada paper — creation of asset bubbles, as households take advantage of easy money conditions to purchase homes. As well, market distortions and risks as low yields hammer pension funds and insurance companies, which might be driven to riskier ventures to meet their longer-term liabilities.

The Bank of Canada economists, however, do not offer an opinion on when to begin pulling back the stimulus, but agree that almost five years of super-low interest rates have come at a cost.

Removing stimulus poses new risks, the economists add, including that central banks themselves could suffer losses from the risky assets they acquired.

A bigger problem may arise if all the money central banks have poured into the system comes back to haunt them by spiking inflationary pressures.

Still the authors say the central bank experiment with monetary easing was worth the potential price.

“On balance, research to date suggests these measures were, and remain, effective. Without them, economic outcomes would have been much worse,” they say.

“The Toronto Land Transfer Tax should be scrapped, not capped.  We are encouraged that the Executive Committee is considering action on the Land Transfer Tax, but, not only is capping not enough to correct the problems that this tax is creating for our City, it could make this bad tax even worse,” said Ann Hannah, President of the Toronto Real Estate Board.

In a letter to the Executive Committee, TREB has pointed out that, based on reported details, the proposed capping scheme could create considerable uncertainty for home buyers, if, as proposed, surpluses in Land Transfer Tax revenue are dedicated for reducing the tax in the subsequent year.  Under this scenario, home buyers could be artificially encouraged to delay home purchases, thus interfering with the natural operation of the real estate market.   This concern has also been articulated by renowned municipal finance expert, Enid Slack of the University of Toronto, who was recently quoted by the media as saying “If you want to reduce the land transfer tax, why would you not just reduce the tax rate, and say the tax rates are going down, so there is some certainty for taxpayers going forward? With this method (capping), they’re not going to know what the tax rate is next year.”

“The best approach is a phased elimination of this tax.  The only way to truly solve the problems that this tax is creating for our City is to get rid of it; and with a predictable phase-out strategy, home buyers could make informed decisions and City Council could set a reasonable schedule, which would make market distortions unlikely, ” said Von Palmer, TREB’s Chief Government and Public Affairs Officer.

Research has proven that municipal land transfer taxes have a negative impact on home sales. The C.D. Howe Institute recently released an analysis of the Toronto Land Transfer Tax, which shows that this tax has hurt Toronto’s economy by dampening home sales by 16 per cent.  This is supported by a recent poll conducted by Ipsos Reid, which found that 77 per cent of GTA residents planning to purchase a home in the next two years are more likely to purchase outside Toronto specifically to avoid paying the Toronto Land Transfer Tax.  This poll also found that nearly seven in ten Torontonians, 68 per cent, support plans to eliminate the Toronto Land Transfer Tax.

“Capping equals keeping. That’s not good enough for our City and it’s not what Torontonians want. The public has repeatedly made it clear that they want the Land Transfer Tax scrapped,” said Palmer.

Source: TREB

The average selling price for February 2013 was $510,580 – up two per cent in comparison to February 2012.

“The share of sales and dollar volume accounted for by luxury detached homes in the City of Toronto was lower this February compared to last.  This contributed to a more modest pace of overall average price growth for the GTA as a whole,” said Toronto Real Estate Board (TREB) President Ann Hannah.

“Stricter mortgage lending guidelines that precluded government backed mortgages on homes sold for over one million dollars and the City of Toronto’s additional upfront land transfer tax arguably played a role in the slower pace of luxury detached home sales,” added Ms. Hannah.

The MLS® HPI Composite Benchmark price covering all major home types eliminates fluctuations in price growth due to changes in sales mix.  The Composite Benchmark price was up by more than three per cent on a year-over-year basis in February.

“We will undoubtedly experience some volatility in price growth for some market segments in 2013.  However, months of inventory in the low-rise market segment will remain low, resulting in average price growth above three per cent for the TREB market area this year.  Our current average price forecast is $515,000 for all home types combined in 2013,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

Source: TREB

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“The January sales figures represent a good start to 2013.  While the number of transactions was down slightly compared to last year, the rate of decline was much less than what was experienced in the second half of 2012.  This suggests that some buyers, who put their decision to purchase on hold last year due to stricter mortgage lending guidelines, are once again becoming active in the market,” said Toronto Real Estate Board (TREB) President Ann Hannah.

“It is interesting to note that sales were up for many home types in the GTA regions surrounding the City of Toronto.  This is due, at least in part, to the additional upfront land transfer tax in the City of Toronto,” added Ms. Hannah.

The average selling price for January 2013 sales was $482,648 – up by 4.3 per cent compared to $462,655 in January 2012.  The MLS® Home Price Index (HPI) Composite Benchmark price was up by 3.8 per cent over the same period.

“There will be enough competition between buyers in the marketplace to prompt continued growth in home prices in 2013.  Expect annual average price growth in the three to five per cent range this year,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

Greater Toronto REALTORS® are passionate about their work. They are governed by a strict Code of Ethics and share a state-of-the-art Multiple Listing Service. Over 36,000 TREB Members serve consumers in the Greater Toronto Area.  The Toronto Real Estate Board is Canada’s largest real estate board.

Source: TREB

Download Latest Market Watch: Here

“The number of transactions in 2012 was quite strong from a historic perspective.  We saw strong year-over-year growth in sales in the first half of the year, but this growth was more than offset by sales declines in the second half.  Stricter mortgage lending guidelines resulted in some households postponing their purchase of a home.  In the City of Toronto, the dip in sales was compounded by the additional Land Transfer Tax, which buyers must pay upfront,” said Toronto Real Estate Board (TREB) President Ann Hannah.

The average selling price in December 2012 was up by 6.5 per cent year-over-year to $478,739.  The average selling price for 2012 as a whole was up by almost seven per cent to $497,298.

“Robust annual rates of price growth were reported through most months of 2012.  Price growth was strongest for low-rise homes, including singles, semis and townhouses.  Despite a dip in sales, market conditions remained tight for these home types with substantial competition between buyers,” said TREB’s Senior Manager of Market Analysis Jason Mercer.

Source: TREB

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