Last week the Bank of Canada dropped its key interest rate by 25 bps, putting it at 2.75%. As a result of this, lenders have dropped their prime rate to 4.95%. Here are some possible insights into what the market will look like in the upcoming months.
With the anticipation of US tariffs still clouding the horizon, the housing market is a hub of uncertainty. In their latest statement, the Bank of Canada has predicted that inflation could be expected to increase at the end of March to around 2.5%. This is a short-term prediction that would not be wise for the Band of Canada to overlook, the idea being that shorter predictions will allow for faster reflexes if the tariff’s economic impact is severe. If they react too late, inflation could increase far higher than it should. Their main goal must necessarily be to ensure that higher prices do not lead to ongoing inflation.
Inflation Rate Chart
What does this mean for our market currently? Canadians are demonstrating a hesitancy when it comes to purchasing real estate. Businesses are reportedly reluctant to move forward with hiring and investment plans due to uncertainty around the economic impact of the U.S tariffs. While we feel that the U.S. tariff threat will be short lived, especially with the potential of a new government coming in soon, it is definitely having a psychological impact on buyers.
Hesitancy to purchase from home buyers could increase mortgage refinance activity as potential homebuyers elect to consolidate/refinance debt in the short term rather than making home purchase plans. Our office has seen a large increase in mortgage refinance activity over the last month. The number of people opting for variable mortgage rates rather than long term fixed rates on their mortgages has increased substantially over the last 3 months as the prime rate continues to drop and fixed mortgage rates remain relatively flat.
Where we stand right now, economists are predicting more rate cuts to follow as inflation jitters continue to loom. We still have to wait for the prime drops to become official. April will hopefully bring more clarity to homebuyers with the Bank of Canada meeting on April 16th, with a 49% chance of another 25 bps cut. Keep in mind the Bank of Canada meetings normally only affect the variable rates. If you are looking for fixed rates to drop, these are independent of what the prime rate does and these rates have been relatively flat for the last 6 months.
If you need more information regarding mortgages of if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker, please visit our website at www.ymscanada.ca.
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