The Bank of Canada confirmed today that it is maintaining its target for the overnight rate at the effective lower bound of 0.25%.
The Bank aims to keep the policy interest rate at the effective lower bound until the economic slack is absorbed and the 2% inflation target is sustainably achieved.
This does not come as a surprise, as even before this announcement, the general consensus in the industry was that the interest rates were going to remain low due to the uncertainty caused by the COVID-19 pandemic.
Analysts have indicated that the Bank may not raise the interest rates until at least 2023.
The Bank also confirmed that the real GDP fell by 11.5% in the second quarter and all components of aggregate demand had weakened. Though a positive development has also been seen, the bounce-back in activity in the third quarter seems to be faster than anticipated.
In a recent press conference, Tiff Macklem, the Governor of The Bank of Canada, shared insights on the future of interest rates in Canada.
He said, “It’s going to be a long climb out. We are being unusually clear that interest rates are going to be unusually low for a long time.”
Reopening and Real Estate Outlook
On the economic activities front, restrictions continue to be eased and reopening plans have been implemented across different provinces.
As employment is picking up and businesses are opening doors to their brick-and-mortar facilities, real estate industry stakeholders are hopeful that this would result in more activity in the sector.
Sales registration volumes do affirm this hopeful outlook. According to the Teranet Monthly Market Insights Report, published in August 2020, the sales registration volumes for residential properties continued to exhibit a positive upward trend and increased from 24,000 in June 2020 to 26,000 in July 2020.
Another key consideration, when it comes to the real estate market, is immigration. Immigration has been one of the main drivers of increased activity in the real estate market in Canada. With the pandemic temporarily slowing down the immigration process, some stakeholders anticipate that this may cause a decline in real estate demand in some regions.
What Does This Mean for The Canadian Mortgage Market?
We are already seeing the impact of the pandemic on the market. Looking at Ontario, we can see that, for the first time in 2020, in July, all of the top 20 municipalities in the province experienced a decline in mortgage registrations compared to the same time in 2019.
Though, even when there was a decline in the residential mortgage transactions, if we look at the total dollar value of mortgage registrations, within the first seven months of 2020, there was a significant increase compared to 2019.
So that’s a positive sign.
Another important development is that mortgage deferrals are almost up. Canada’s biggest banks offered mortgage and home equity line of credit deferrals of more than $180 billion and now these deferrals are coming to an end.
If people are unable to resume payments, there may be a rise in default rates.
There is uncertainty in the market for lenders but there are also incentives for lenders, brokers, and of course home buyers.
Mortgage rates are at an all-time low – customers now have the option to avail insured 5-year fixed mortgages at around a 2.00% (or an even lesser) rate. Additionally, stress test rates have also been lowered. This means that many first-time homebuyers would be more inclined to buy a property and current homeowners may look into refinancing options.
As the reopening plans are cautiously implemented across Canada, employment numbers go up, and economic activity resumes, we can expect a rise in consumer confidence.
Read the full Bank of Canada rate announcement here: https://www.bankofcanada.ca/2020/09/fad-press-release-2020-09-09/
The next BOC release is scheduled for October 28, 2020.
Purview’s property solutions can help navigate a changing Canadian interest rate and economic conditions. Learn more about our solutions by calling 1-855-787-8439 or visiting www.purview.ca.