With a July rate announcement right around the corner the Canadian interest rate guessing game begins. It has been wildly reported that one of the things that could certainly smolder a hot real estate market would be rate hikes.
2015 was an interesting year. With talk that Canada was in a recession combined with the ever dropping oil prices and a dollar that hit the floor, the Bank of Canada reduced interest rates by .25% twice, leaving Canada’s lending rate at .5% which has only been seen twice prior to 2007, before the recession in 2008 hit.
In fact, we took a look back at the Bank of Canada’s past interest rate announcements since 2007 and the results were interesting:
- Jan 2004 – 4.25%
- Jul 2007 – 4.5%
- Dec 2007 – 4.25%
- Jan 2007 – 4%
- Mar 2008 – 3.5%.
- April 2008 – 3%
- Oct 2008 – 2.25%
- Oct 2008 – 2%
- Dec 2008 – 1.5%
- Jan 2009 – 1%
- Mar 2009 – .5%
- Apr 2009 – .25%
- June 2010 – .5%
- July 2010 – .75%
- Sept 2010 – 1%
- Jan 2015 – .75%
- July 2015 – .5%
A few points to note:
- Interest rates have not been as low as they are now since July 2010
- Interest rates remained at 1% from Sept 2010 – Jan 2015
- The Bank of Canada reduced rates twice in 2015, the first time since 2009 when the BOC reduced rates 3 times during the course of the year.
Where speculation is concerned, Canada is not currently in a recession (this acknowledges the issues in Alberta) and oil prices are increasing (see more at: http://oilprice.com/Energy/Energy-General/Why-Oil-Prices-Increased-Despite-Doha-Disaster.html). Could this mean a July 2016 interest rate increase or, as was the case with April’s announcement, will the Bank of Canada maintain the status quo?
There is no doubt, should interest rates get back to 2007 levels, that this will have an impact on the housing market. Look at urban centres like Toronto and Vancouver, where the average price of a single family detached home has surpassed 1 million dollars, where a mortgage on the same property at 2007 interest rates vs todays rates would cost significantly more to repay both in bottom line cost and in massive mortgage payments. This could certainly impact demand.
Also, what is interesting is that, should rates go up, depending on how the economy is performing, it could happen as rapidly as they went down – and we saw that they went from 4.5% in July of 2007 down to .25% in under 24 months.
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