Canadian Interest Rate Holding at 1.75% for December 2018: What This Means for Real Estate
On December 5, 2018, the Bank of Canada (BOC) announced that it would hold the overnight rate at the amount set on October 24, 2018 of 1.75%. The Bank Rate is correspondingly 2% and the deposit rate is 1.5%.
In its decision, the BOC referenced household credit and regional housing markets, saying that both “appear to be stabilizing following a significant slowdown in recent quarters.”
“The Bank continues to monitor the impact on both builders and buyers of tighter mortgage rules, regional housing policy changes, and higher interest rates,” the BOC stated in a release.
However, the regional housing market wasn’t the biggest factor in the Dec. 5 decision.
Oil prices have fallen sharply since the October announcement and benchmarks for western Canadian oil have been further pulled down by transportation constraints and a buildup of inventories. The BOC has said they will be keeping an eye on this economic factor moving forward.
Trade conflicts are also facing uncertainty.
Moving forward, the BOC will be keeping an eye on these factors, plus Canadian household debt and housing levels. They still indicate that further hikes will likely be coming.
For those in the real estate market, this could indicate a reprieve. If clients are shopping for a new home, or you are considering buying a property for investment purposes, interest rates are still at a relatively low level. That could be changing in 2019. Economists are widely predicting that the Canadian interest rate could reach at least 2.5% in the next 12 months.
This hold might mean encouraging clients to deal with outstanding household debt now, or access home equity while they can. As the gross debt service (GDS) ratio — total amount of housing-related debt — and total debt service (TDS) ratio — total amount of all debt — are now weighed more heavily by mortgage lenders, it’s a good idea to get those levels as low as possible before applying for mortgage funding.
The next BOC announcement is scheduled for January 9, 2019.
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