At 9:45am this morning, it's widely expected that the Bank of Canada will announce it's first reduction in it's policy rate since March 2020. Starting in March 2022, we saw increases taking that policy rate up to 5% where it has sat since July of last year.
We know what the effects of the increases have been on the economy and on the real estate market. What will this first, and subsequent, interest rate reductions result in?
1. More purchasers entering the market. With concrete evidence of a turn in rates, consumer sentiment will shift and the combination of pent-up demand, FOMO, and easier qualification over time all will combine to bring people off the sidelines.
2. A move back towards adjustable rate mortgages compared to fixed rates - although I think that is several months off in the future. There is still too much of a premium on variable/adjustable rate options compared to 3-5 yr fixed rates.
3. Less panic over renewal terms - the media has taken every opportunity to whip up fear and borrowers into a frenzied state over how much higher their payments will be at renewal. As this key benchmark rate starts to decline - as bond rates start to come down in anticipation of this trend reversal - it should bring some level of calm for those renewing in the next 12-18 months.
4. This most certainly could - likely will - raise concerns over home price inflation. It's pretty simple. More demand - limited supply - prices will only move in one direction. It's why we said early in 2024 that those thinking about purchasing - that was the time. The old adage applies - the best time to buy was yesterday - the second best is today.
5. Likely longer turn around times with lenders on mortgage requests. There is only so much capacity in the system.
6. Finally - if you like a 5+% GIC rate - grab it now!! They won't be around for much longer.
Note - if by some slim chance, Governor Macklem postpones a rate reduction until July, hold this post for 30 days - all will still apply lol.
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