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Bank of Canada’s Final Interest Rate Hold for 2023: Housing Market Impact

Published Dec 06, 2023 12:10
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The Bank of Canada’s decision today to hold steady at the current 5% overnight lending rate is a hopeful sign that inflation is cooling and the goal to slow spending is working. This marks the third month that the Bank of Canada has announced to hold rates, following September and October.

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Are Rate Cuts in Store for 2024?

Canada’s annual inflation rate dropped from 3.8% in September to 3.1% in October according to Statistics Canada. This was in line with predictions but is still a ways away from the Bank of Canada’s target of 2%. As inflation has been consistently trending downwards, it seems likely from recent commentary from the Bank of Canada that rate hikes are over. “Canadians should read the Bank’s commentary closely to see if there are clues as to what their policy will be going forward,” explains James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. “Anticipation of potential rate cuts is driving down bond yields, which has caused fixed rates to come down since the last Bank of Canada announcement,” added Laird.

Higher Rates are Keeping Prices and Sales Down in Most Markets

It can take several months for the full effect of a rate hike to trickle down to consumers and it seems that the impact of the Bank of Canada’s previous 10 rate hikes is manifesting in the form of softening prices and sales across the country. According to the Canadian Real Estate Association, national home sales were down 3.4% month-over-month in October, while the national benchmark price declined by 1.4% month-over-month to $731,100. In this climate, motivated buyers will face less competition and may be able to find hidden gems that were previously priced higher.

Although prices are coming down, a lack of supply, notably a lack of affordable options, is keeping some would-be buyers on the sidelines. In response, the government of Canada recently announced several ways it plans to tackle the housing shortage issue, including investing $1 billion to build more affordable housing, removing GST from new co-op rental housing, and repurposing federal properties to develop more than 2,800 new homes in Edmonton, Calgary, St. John’s and Ottawa.

Renewing Your Mortgage in 2024?

According to the Canada Mortgage and Housing Corporation, an estimated 2.2 million Canadians will be renewing their mortgage in 2024 and 2025. Most homeowners will be bracing for higher rates than the historical lows seen during the pandemic when many of these mortgage agreements were first made. Though many economists predict that the Bank of Canada is done hiking rates, nothing is off the table yet.

“Anyone choosing between a fixed and variable rate at the moment would only consider a variable rate if they are open to more risk and have conviction that the Bank is finished or close to finished hiking rates,” continued Laird. Locking in a fixed rate would protect you from rising interest rates if the Bank of Canada does decide to hike rates further in 2024

Bank of Canada’s Final Interest Rate Hold for 2023: Housing Market Impact
 

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