Archive for the 'Interest Rates' Category

January 28, 2019

Last year in 2018 we saw many changes to the Canadian housing market. Now that 2019 is here, what will this year bring?

We’re breaking down real estate predictions for the year ahead. Here’s what’s on our radar:

1. Interest Rate Increases

In 2018, we saw Canadian interest rates rise from 1% to 1.75% and more hikes are on the horizon for 2019. Economists speculate we may see interest rates reach 2.25% by 2020.

This may seem small, but it could have a big impact on Canadian household debt. It may change what kinds of houses Canadians are able to afford and how well they can keep up with expenses, like utility payments.

2. Housing Prices

Overall, in 2018, house prices in Canada rose at a slow rate — the slowest since 2009 in some months. The Teranet-National Bank House Price Index has captured all of the data from the past year. Toronto and Vancouver have struggled, but other markets, like Montreal and Ottawa-Gatineau, have recorded larger increases over the past few months.

In 2019, we may see more stabilization, but it will likely take more time before we return to where we were.

3. Dwelling Shifts

With increased interest rates and mortgage stress tests, homebuyers are gravitating towards different dwelling types — in particular condos and multi-family units. Supply for single-family residential homes is tight in major cities.

This may mean that multi-family units continue to rise in popularity. It could also mean that more families seek out different areas to reside in — for example, opting for an affordable small town instead of a bigger urban centre.

4. More Affordable Housing

In 2018, the Ontario Real Estate Association (OREA) joined forces with other agencies to lobby the provincial government for more affordable housing options for millennials. Particularly in Toronto, OREA has said there is a housing crisis.

This conversation is taking place across the country about how to create more affordable housing, especially with home prices on the rise. We expect these talks will continue into 2019.

5. Insurance Premiums May Rise

As of January 1, 2019, new MICAT (mortgage insurer capital adequacy test) guidelines are in effect, which could see default insurance premiums rise.

6. Technology

Digital transformation has been a buzzword for a while, but in 2019 we are entering a new age of real estate technology. On the residential front, this will look like more smart devices in homes — such as voice technology using Amazon’s Alexa or the Google Home

systems. Home buyers may also want to control lighting and other utilities from mobile devices and the like.

On the real estate sales front, more technology also amounts to more opportunities for sales professionals. We may see a surge in paperless real estate, or more automation being included in property evaluation, like aerial imagery from drones or viewing a home through virtual reality (VR).

No matter what changes affect the real estate market in 2019, GeoWarehouse can help you adapt. Our tools are accurate, up-to-date, and easy to access, meaning you’ll be able to stay agile and competitive.

Learn more by calling 1-866-237-5937 or visit www.geowarehouse.ca.

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Good news for those who have resolved to buy a house in 2019: the Bank of Canada overnight rate is staying the same for now.

On January 9, 2019, the Bank of Canada (BOC) announced that the overnight interest rate would stay at 1.75% (the rate set in October of 2018) for the time being.

Part of the reason for the hold was Canadian housing investment.

“…consumption spending and housing investment have been weaker than expected as housing markets adjust to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates,” the BOC stated in a release.

“Household spending will be dampened further by slow growth in oil-producing provinces. The Bank will continue to monitor these adjustments.”

Between mortgage guidelines introduced in January 2018, interest rates increasing from 0.5% of 1.75% from July of 2017 to now, and other measures, such as the foreign buyers’ tax, the Canadian housing market has been slowing down.

But it’s not just the real estate market. With higher interest rates and less disposable income to spend, consumers are spending less on non-essential goods. While there are other factors that drive the economy, the drop in consumer spending is having an effect.

The real estate market wasn’t the only reason for the BOC’s decision. Two other factors were the global economic outlook – particularly the U.S.-China trade conflict — and global oil prices. The BOC has said it will continue to monitor these items.

Interest rate increases have been predicted to slow down in 2019, but the BOC doesn’t think they’ll stop altogether.

“Weighing all of these factors, Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” the BOC stated.

“The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy.”

The next Bank of Canada interest rate announcement is scheduled for March 6, 2019. View the full text of the BOC’s January 9 decision here: https://www.bankofcanada.ca/2019/01/fad-press-release-2019-01-09/.

No matter what changes with interest rates, or the Canadian real estate market, GeoWarehouse has tools that can help. Our property information enables you to stay on top of a changing market.

Contact us today to learn more about becoming a subscriber. Call 1-866-237-5937 or visit www.geowarehouse.ca.

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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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