Forecasting the recent ebbs and flows of our real estate market has been less about overall economic wellbeing and market sentiment and more about the raw impact of high interest rates.
With the Bank of Canada’s (BoC) latest 0.5% reduction in the cash rate, we have now seen the base rate fall 1.25% in a matter of a few months.
As most property experts will tell you, you need a full 1% cut in mortgage rates to change market sentiment. And the BoC has done that – and some!
In fact, it’s reduced rates faster than any other mature economy and implemented its biggest rate cuts since the Global Financial Crisis in 2009
So, two questions beckon: Are more cuts on the way? And, what does this mean for the housing market?
It’s certainly possible the BoC could move again. Our inflation rate is now 1.6%, one of the lowest among Western economies, and the bank predicts real GDP will rise 2.3% in both 2025 and 2026.
This level of economic growth, possibly spurred by additional rate cuts, will inevitably put the bounce back in our housing market.
The BoC says the strength of the rebound will likely influence any decision to reduce the cash rate further. The rapid pace of its cuts has created concern around affordability.
Plus, new government rules to increase from 25 to 30 years the length of an insured home loan is also a significant stimulating factor.
We believe a combination of cheaper money and FOMO (fear of missing out) could spark a significant jump in values over the late winter period and into the spring selling season.
Consequently, it may be a good time to make your move now. Here’s some advice for first homebuyers and upgraders:
First homebuyers
Prepare for Competition: Falling rates often stimulate demand, leading to more competition and potentially higher prices. Be ready to act decisively when you find the right property.
Maximise Your Borrowing Power: With cheaper borrowing, explore how much you can realistically borrow while staying within your budget.
Don’t Over-Extend: Lower interest rates can make borrowing more tempting, but stick to a budget you can comfortably afford.
Seek Professional Advice: Consult a financial advisor and a mortgage broker to help you navigate the market and make informed decisions.
Upgraders
Assess Your Equity: Falling rates may have increased your equity, giving you more leverage for upgrading. Get your property appraised to understand your current position.
Make a Strategy: Consider selling your existing property before buying a new one to avoid bridging finance or being caught in a price squeeze.
Be Realistic About Your Needs: Balance your desire for a larger or more luxurious home with your long-term financial goals.
Consider a Longer Fixed-Rate Term: Locking in a fixed rate for a longer period can provide stability and peace of mind, especially if you anticipate rate fluctuations.