Everyone monitoring or acting in the real estate world right now is talking about the recent interest rate cuts from the Bank of Canada! The 0.25% cut, along with the proposed incremental cuts, will have noticeable effects in both the short term and over a longer period of time.
The Globe and Mail released an article on June 19th to discuss this topic. As of now, the interest rates have been brought down to 4.75% from 5%, with two more rate cuts projected to happen by the end of 2024. However, the governing body of the Bank of Canada has stated that they will be lowering interest rates very slowly, meaning that we will probably not see pre-2022 numbers of around 3 percent at least until late next year.
An immediate effect that market analysts are seeing is the rise in home prices. As interest rates lower, it will become more affordable to own a home and maintain a mortgage, meaning that there will be even more demand for homes, which will drive up costs. At face value, this can be discouraging, but it is also important to consider that acquiring a mortgage in the first place will be cheaper. With lower interest rates, you won’t need to put down as much money for a deposit, and your mortgage payments will still be affordable even with a smaller deposit. It has also been noted that, almost immediately after the interest rate cut, a large wave of homeowners renewed their mortgages, this trend is expected to continue as incremental cuts also continue.
In the long term, although mortgages will be more affordable, this may lead to an even further scarcity of housing options in Canada. While lower interest rates have been predicted to positively affect inflation and wage growth, it seems to be a bit of a double edged sword in the housing market of Canada and Alberta. It will strengthen the economy within and around real estate, but people will most likely have an increasingly more difficult time finding housing -either in renting or buying- especially in major cities such as Calgary, Toronto, and Vancouver.
Because of past issues with housing supply throughout Canada, and these recent projections, the Government of Canada is focusing on creating more livable units, and in lowering costs. For example, in 2022, the Canadian government budgeted for $1.5 billion extra dollars to go towards building more homes, and they will likely be re-evaluating and increasing that amount for the next two years. First time home buyers have also been offered a program in the last few years that allows them to take out an interest-free loan of up to 10% for their down deposit, and it has recently been extended to March 31, 2025, so there is still plenty of time to take advantage of this incentive!
In conclusion, a further rise in costs caused by rate decreases should not keep you from getting into the housing market! There are ways to mitigate costs, and with support from the right realtor who will help you take advantage of the provincial and federal opportunities to help you buy a home, now is just as good a time as any to do so.