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Bank of Canada Overnight Rate Remains at 0.25% – What Impact Will This Have on The Real Estate Market?

By July 17, 2020August 14th, 2023No Comments

To facilitate economic recovery, The Bank of Canada will keep the Canadian Overnight Rate at an effective lower bound of 0.25%.

The Bank has also reiterated that the monetary policy measures, launched earlier this year, such as the Quantitative easing (QE) program, will continue to remain in place, to support Canadian businesses and individuals impacted by the COVID-19 pandemic.

Lower interest can be considered a catalyst for investment and borrowing activity.

While there is a general consensus that the economy will begin to rebound this year, there are differences of opinions on the timing, especially when it comes to the real estate industry.

Financial Institutions – An Uncertain Outlook

Financial institutions have pointed to an uncertain future and predicted that the housing market is headed for a slowdown.

Economists at the National Bank of Canada, for instance, have predicted a sharp decline in the real estate prices this year. They have forecasted a price decline of about 9.8% from 2020-2021.

Similarly, Rishi Sondhi, an economist at TD Bank, forecasted that the Canadian home sales would remain below their pre-virus level for the remainder of 2020.

Teranet–National Bank National Composite House Price IndexTM also indicated an imminent slowdown in the real estate market.

It highlighted that the number of repeat sales used to derive indexes was down 22% from a year earlier, the largest 12-month decrease since April 2013, and the raw composite index for the month was up only 0.2% which is a very marked slowdown from the previous months.

Real Estate Companies – A Different Perspective

While the financial outlook may seem bleak, real estate companies have a more optimistic view.

RE/MAX, a real estate organization in Canada, points out that even though there was a temporary freeze in the Toronto real estate market, a month later, there was a surprising rebound.

Toronto Regional Real Estate Board (TRREB), also confirmed that in the month of May, home prices in Toronto and across the GTA, saw a 3% year-on-year increase.

What’s even more astounding is that the average selling price for all major home types was up when a year-on-year comparison was done. In Toronto, semi-detached homes, for instance, experienced a significant price growth of 22%.

Royal LePage House Price Survey and Market Survey Forecast validates these observations. The report highlights that the aggregate price of a home in Canada increased by 6.8% year-over-year in the second quarter of 2020.

Similar positive insights are emerging from other cities as well as smaller towns. Barrie and District Association of Realtors (BDAR) also confirmed that the housing prices were increasing in the region.

What To Expect?

While there is uncertainty in the market, easing restrictions, reopening of provinces, and individuals returning to work are changes that can positively impact the real estate industry.

As sellers return to the market, inventories rise, and mortgages become available on lower rates, activity is likely to pick in the market.

This is why it is critical to stay abreast of all the developments and trends. For when the activities do pick up, you are prepared to act accordingly.

Sophisticated, integrated tools can provide updated information like property trends and data to enable you to assess properties, neighbourhoods, and regions, in real-time.

Read the full July 15 Bank of Canada rate announcement here:

What impact have you seen of interest rates on the Canadian housing market? Share with us on social media. GeoWarehouse is on Twitter, Facebook, and LinkedIn.

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