Archive for the 'Interest Rates' Category

The Bank of Canada interest rate is staying at 1.75% for the remainder of 2018.

On December 5, 2018, the Bank of Canada (BOC) announced that it would hold the overnight rate at the amount set on October 24, 2018 of 1.75%. The Bank Rate is correspondingly 2% and the deposit rate is 1.5%.

In its decision, the BOC referenced household credit and regional housing markets, saying that both “appear to be stabilizing following a significant slowdown in recent quarters.”

“The Bank continues to monitor the impact on both builders and buyers of tighter mortgage rules, regional housing policy changes, and higher interest rates,” the BOC stated in a release.

However, the regional housing market wasn’t the biggest factor in the Dec. 5 decision.

Oil prices have fallen sharply since the October announcement and benchmarks for western Canadian oil have been further pulled down by transportation constraints and a buildup of inventories. The BOC has said they will be keeping an eye on this economic factor moving forward.

Trade conflicts are also facing uncertainty.

Moving forward, the BOC will be keeping an eye on these factors, plus Canadian household debt and housing levels. They still indicate that further hikes will likely be coming.

For those in the real estate market, this could indicate a reprieve. If clients are shopping for a new home, or you are considering buying a property for investment purposes, interest rates are still at a relatively low level. That could be changing in 2019. Economists are widely predicting that the Canadian interest rate could reach at least 2.5% in the next 12 months.

This hold might mean encouraging clients to deal with outstanding household debt now, or access home equity while they can. As the gross debt service (GDS) ratio — total amount of housing-related debt — and total debt service (TDS) ratio — total amount of all debt — are now weighed more heavily by mortgage lenders, it’s a good idea to get those levels as low as possible before applying for mortgage funding.

The next BOC announcement is scheduled for January 9, 2019.

GeoWarehouse has real estate tools to help find opportunities even with a rising Canadian interest rate. Access our property search, sales comparables, demographics reports, and more all at www.geowarehouse.ca.

Call 1-866-237-5937 to find out how to become a subscriber.

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October 24, 2018

The Bank of Canada overnight rate has gone up to 1.75% after an October 24, 2018 announcement.

This is the fifth interest rate increase since July of 2017, and the third in 2018.

The Bank of Canada (BOC) cited robust U.S. and Canadian economies and the new US-Mexico-Canada Agreement (USMCA) as some of its reasons for the increase.

Other justifications included business investment and export projections, a stable inflation rate, and steady household spending.

There was only one mention of the Canadian housing market in the announcement.

“Households are adjusting their spending as expected in response to higher interest rates and housing market policies,” the BOC stated.

“In this context, household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.”

The October 24 rate increase was expected by many, especially once the USMCA deal was approved.

The BOC indicated there will be more increases on the horizon, though perhaps not as many as originally thought.

“In determining the appropriate pace of rate increases, Governing Council will continue to take into account how the economy is adjusting to higher interest rates, given the elevated level of household debt,” the BOC said.

There is one more interest rate announcement scheduled for 2018, on December 5.

The effects of the hike on real estate interest rates remain to be seen.

GeoWarehouse has tools for real estate professionals that can help navigate interest rate changes. Research the latest property data, comparable sales, and more.

Call 1-866-237-5937 or visit www.geowarehouse.ca to learn more.

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October 23, 2017

There is no denying it – real estate and interest rates work hand-in-hand, each impacting the other. Do higher rates mean lower prices or is it vice versa? Have years of low rates caused Canada’s housing prices to skyrocket?

If rates do go up, can Canadians absorb an increase in interest rates? Canadian households are drowning in debt, according to Macleans: http://www.macleans.ca/news/canada/drowning-in-debt-is-the-new-normal-in-canada/ so can most handle a modest 1% rate increase, for example?

On July 12, the Bank of Canada raised the overnight rate to 3/4 percent for the first time in almost seven years. After years in a low-rate environment, experts agree that interest rates in Canada had nowhere to go but up, predicting that rates would grow by 1% – but not until 2018. Throughout 2016, Canadian rates remained relatively unchanged. However, economists and the federal government both agreed that interest rates had to rise at some point. Then, in September, the BOC did it again.

Let’s look at rising interest rates and the impacts they could have on real estate. When interest rates rise, thereby resulting in higher borrowing costs than many had previously planned for, it can suddenly make previously low-risk borrowers riskier. It could also mean bigger hurdles for first-time homebuyers, or suddenly high-risk homeowners looking to refinance their mortgage. As rates increase, the number of risky credit users could also increase.

TransUnion explained in a 2016 report that a 1% interest rate increase could mean payment shock for up to one million credit-active consumers. These consumers may not be able to absorb the higher payments that come with a rate increase.

For some homeowners, this could mean $50 or even $100 more each month. While cutting corners, such as eating out less or cutting out cable tv, can help absorb a small increase in monthly payments for some homeowners, some may not be able to easily adapt.

With regard to real estate and interest rates, experts and critics alike have been saying that rates were going to rise for years. Now they have, and because Canadians may have become overly confident that they wouldn’t, they may not be prepared. It has been a seller’s market for so long, thanks in part to low interest rates driving up property values, although this too has made it challenging for potential homebuyers to enter the market. Low interest rates have clearly been a contributor to Canada’s hot real estate market. People are more inclined to buy when rates are low. Now that rates have finally increased, what does this mean for Canadian families?

In a recent CBC article, experts noted that many buyers are facing challenges entering the market now due to market affordability and government legislation, but it may only be a temporary downturn: http://www.cbc.ca/news/canada/toronto/buyers-sellings-must-adapt-as-gta-housing-market-moderates-1.4204187.

Yet, in this Montreal Gazette article: http://montrealgazette.com/business/local-business/real-estate/interest-rate-increase-unlikely-to-slow-montreals-real-estate-market-qfreb and this CTV article: http://www.ctvnews.ca/business/modest-rate-hikes-to-have-little-impact-on-high-end-real-estate-sotheby-s-1.3497574, the authors suggest that this modest rate increase will have little-to-no impact on the hot markets.

This past June, the Teranet–National Bank National Composite House Price Index™ went up 2.6% – the largest June rise in the 19-year history of the index. This followed another record increase in May, and June’s historically large raise took the composite index to an all-time high for the 17th consecutive month. However, the August report marked a slight downturn, so there is undeniably movement.

What does this mean for real estate sales professionals? Changing interest rates affect numerous aspects of real estate, and aside from the price of a new home, interest rates also impact what’s available on the market and influence market demand. It’s Economics 101: the flow of capital affects supply and demand for property and, as a result, that affects property prices.

Real estate and interest rates are forever linked, and it pays to know the market so you can prepare for changes in the rates. As a subscriber to GeoWarehouse, you have access to the latest and greatest property data and reports to help you make the most informed real estate transactions. Having the edge that GeoWarehouse’s suite of tools and reports provide can help you grow your bottom line.

Visit www.geowarehouse.ca today to learn more.

 

 

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