The Bank of Canada opted to maintain its overnight lending rate steady for the second time this year, freezing the rate at 5% until at least April 9. Canadian inflation slowed more than expected in January, hitting 2.9%. Although this is still higher than the Bank’s goal of 2%, this was positive news following December’s inflation rate hike.
This strategic decision fosters stability and confidence within the economy and with the spring market just around the corner, buyers and sellers alike may finally be ready to jump in with both feet.
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Fixed Rates are Already on a Downward Trend
In January 2024, some 5-year fixed rates declined to 4.84%, a low not seen since June 2023 and a substantial decrease from October’s peak of 5.49%. “This dip in fixed rates has already improved affordability and with average prices remaining relatively stable in many major markets, some savvy buyers are already taking advantage of these market conditions,” explains Carrie Lysenko, Zoocasa CEO.
Although the Bank will have to cut the overnight lending rate for variable rates to fall, the commentary provided in today’s announcement alluded that the rate may be held as is for some time. “Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation. Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”
Declining Rates Put Upward Pressure on Home Prices
According to the Canadian Real Estate Association’s January release, national home sales were up 12.9% month-over-month and 22% year-over-year in January. Most major markets experienced less than a 1% increase in home prices, meaning prices have remained quite flat. The Bank has indicated that it expects to hover around 3% inflation for the first half of 2024, eventually reaching the goal of 2% in early 2025. This means that these stable, more predictable market conditions may persist into the spring. Ultimately, this is positive news for many buyers and sellers who have been on the sidelines, unsure of when to make their move.
“It’s important for those planning to enter the market to remember that when rates do begin to fall, home prices typically increase,” Lysenko continues. This is why timing the market is nearly impossible and prospective buyers and sellers should focus on what affordability means to them. “Buyers should determine what monthly mortgage expenses they’re comfortable with and remember that it’s difficult to plan for long-term market conditions.” When taking on a mortgage rate, keep in mind that the economic climate may be very different in three to five years, at the time of renewal.
Working with a qualified, local real estate agent is the first step in determining when the best time for you to enter the market is. Give us a call today to speak to a real estate agent in your neighbourhood.
