Again, the Bank of Canada lowers its overnight lending rate by 0.25%

bankofcanada

UPDATE JULY 15TH 2015: The Bank of Canada has again reduced the overnight lending rate by 0.25% to .5% prompted by weak global growth and deflation (lower prices for oil and other commodities). For more detail please visit the Globe and Mail report.
WHAT THIS MEANS: If you are looking for a mortgage right now expect bank rates to follow suit – probably by 10 basis points. If you are waiting for house prices to plummet typically Ottawa is not a great place to have such expectations. Now the lower rates will continue to support market prices. Lower activity overall is helping to create ‘deals’ here and there but overall the big visible list price drops won’t be there. Stay tuned for another blog about buying strategy that deals with this but briefly- people that wait for big price drops in order to buy a home usually face these two outcomes: 1. Prices don’t significantly drop. 2. Prices do significantly drop but only because interest rates have gone up to the point where most buyers are unable to afford mortgages (forcing prices down). However with both outcomes there is a downside for the buyer, the seller either gets ‘too much’ or the bank takes it in interest. A better perspective for buyers would be to look for deals that may not be obvious, get good negotiators working for you. And shop with investment value and upside in mind. The great thing about this drop is that it could be a gamechanger on the pre-approval side of things. Banks have been getting more and more difficult over the past two years. Having the Bank of Canada drop it’s rate for the second time this year should help lender confidence and support the belief that rates will not spike in the foreseeable future.
For what this means for you please fill out our buyer custom search form and we will make sure that have an UPDATED Pre-Approval ASAP.

Trying to predict or time interest rates is a bit of a distraction. Interest rate news is best used for our purposes as a bit of a litmus┬átest – a partial indication of nationwide market confidence. It has to be said that interests rates are used to do far more than encourage or discourage homebuyers – rates are used to manage overall economic growth. However, news of an interest rate change in the media immediately becomes a discussion of what the change will mean to borrowers which in most cases means homeowners.

On January 21st 2015 while the Bank of Canada lowered it’s overnight lending rate by 0.25% most people were interested in whether major banks would follow suit. With TD already saying ‘no’ and RBC and CIBC weighing options it looks like the status quo will prevail. [Update Note: All major banks have now moved to drop their prime lending rates by 15 basis points to 2.85% – this is to be seen as a compromise. There is obvious pressure to match the BoC but this is the first time on record (since 1951) that the major banks have raised or lowered their prime lending rate by less than 0.25% which shows that the major banks feel the need to act cautiously.]

As a real estate broker the first thing I’m asked is “How is the market doing?” – Regardless of how I answer the question it becomes clear that many people expect rates to rise and prices to fall. The mistake is to imagine this scenario playing out in any dramatic fashion. Rates are at a historic low, they will go up – but our economy is such that we really shouldn’t expect to be blindsided. The sky has been falling since late 2010, but in reality we have seen little change especially when we consider rates for 5 year terms. Selling a home has become a bit more difficult, fewer buyers and more homes for sale but again, particularly in Ottawa, most sellers sell by choice and many don’t feel the need to make major compromises in order to make it happen. So prices do even out and even drop in some areas but we don’t see a major downturn. City-wide year over year we are still seeing gains.

What then, if anything, is interesting about this news? I believe we should focus on the banks – by not immediately following the BoC they are telling us a bit about their lack of confidence in the current average debt load held by the average Canadian. Getting a mortgage over the past 3 years has become increasingly difficult. So what should we take away from this?

Do not incur more debt than you can handle. Recognize that circumstances change. Banks may also have a different attitude towards you in 5 years so make sure you aren’t walking a tightrope by then.

All logic points to rates rising over time, it is a symptom of a good economy. Plan ahead but don’t ignore the great rates while they are here, this historic low could be once in a lifetime.

If you are planning to buy there is no sense in waiting for prices to plummet, we won’t end up with Detroit’s real estate market. The best way to get a great deal in Ottawa is to use an agent that has the ability to determine seller motivations. While we don’t generally see average prices trend significantly downwards often we do see particular homes sell for far less than they were listed for. Indicating to us a seller that was willing to compromise in order to move on.