The record-low mortgage rates that have underpinned the Canadian housing market during the course of the pandemic will remain the norm for the foreseeable future, as the Bank of Canada (BoC) opted to leave their trend-setting interest rate untouched in September.
In the central bank’s announcement, the BoC indicated the rate will stay at 0.25%, where it has sat since March 2020, as part of its strategy to support the economy during the COVID-19 pandemic. It also revealed no further change to its quantitative easing efforts, and will continue to spend $2 billion weekly in order to prop up the government bond market.
Check out Today’s Lowest Mortgage Rates
A COVID-19 4th Wave Poses Economic Risk
While the summer has been strong for economic growth, enough pandemic-induced risk remains to warrant low interest rates for longer; the BoC points out that while global economic growth recovered through Q2 and into Q3, many industries remain plagued by supply chain disruptions, which are driving up prices and holding up activity for everything from auto manufacturing to retail. As well, a fourth wave of COVID-19 remains a threat in many regions, as governments may be forced to implement lockdown measures again in the fall or winter.
As a result, the Canadian economy has contracted by 1%, a weaker performance than the BoC expected in July. An overall slower summer housing market has also pulled down spending, though business investment, government spending, and consumption remain strong. The job market also continues to improve, particularly in sectors that couldn’t operate during lockdown, or could not easily implement social distancing measures.
Low Rates to Remain Until the End of 2022, Says BoC
All of these factors have led the BoC’s Governing Council to conclude that the central bank needs to continue its “extraordinary monetary policy support” and forecasts this will be the case until the second half of 2022, when its typical 2% inflation target can be “sustainably achieved”.
Currently, the inflation rate sits at 3%, which would normally be cause for the bank to increase rates. As has been the case over the last year and a half, however, it is eschewing this benchmark as it deems low interest rates to be necessary to support ongoing economic recovery.
What Does This Mean for my Mortgage Rate?
As the BoC is holding the status quo this month, it’s likely there will be very little change for today’s mortgage rates in the near future. Those who are currently in a mortgage term with a variable rate won’t see any change to their monthly payments or percentage of principal paid each month. Those shopping for a new mortgage, or are looking to refinance or break their existing mortgage, will also benefit from today’s deeply discounted rates well into next year.
How Will This Impact the Housing Market?
While ongoing record-low mortgage rates are an important part of Canada’s economic recovery strategy, they have also been a contributing factor to the unprecedented price growth experienced in the housing market. In fact, according to a recent survey conducted by Zoocasa, 80% of Canadians feel low rates are driving up the price of homes, and 77% agree they’ve pushed housing costs in small towns and suburban markets to unsustainable levels.
While activity in the housing market has calmed considerably since the peak in March and April – year-over-year sales fell 20% in the Greater Toronto Area in August, and 8% from July’s levels – buyer demand could pick back up again this fall. According to a 10-year historical analysis by Zoocasa, GTA sales could increase by as much as 5.25% by October, and prices could rise by more than $65,000 to an average of $1,127 million. However, as the region continues to be challenged by extremely tight supply – the number of homes bought to market plunged by 43% last month – it remains to be seen how this trend may constrain sales into the fall months.
Related Read: Will the GTA Housing Market Recover in the Fall?
Keep an eye out for the next Bank of Canada announcement, and release of their Monetary Policy Report, on October 27, 2021.