The Bank of Canada (“BOC”) announced today that it is holding its target for the overnight rate at the “effective lower bound” of 0.25%.
Cameron Strong, CEO, Invis Mortgage Intelligence notes that “Canadian mortgage holders can expect no further rate drops, nor increases, until 2022. It is expected the Bank of Canada will keep its target rate at 0.25% until well into 2022 to aid our economic recovery. The Canadian economy is in recession, inflation is at zero, the Canadian dollar relative to the U.S. is $.73, and unemployment is currently above 13%.”
Low interest rates, tightened housing supply, immigration of approximately 400,000 per annum settling in our major urban centres, and pent up demand for housing has boosted average home selling prices in June for the Greater Toronto Area, Vancouver, Ottawa and Montreal areas, but showed a slight decline in Calgary.
Will positive results in home sales and selling prices last and continue to build momentum? The answer is complicated with many factors for and against a positive outcome in real estate. A major component of the answer is how quickly the Canadian labour force can get back on its feet once the CERB income-subsidy benefit and lenders’ mortgage payment deferrals come to an end. It is widely expected the unemployment rate to rebound positively to 7% by the end of 2021 (our unemployment rate prior to COVID was approximately 5%). CMHC has stated, “12 percent of mortgage holders have elected to defer payments and that figure could reach nearly 20 percent by September 2020.” Another key factor is whether economic uncertainty will stall new home construction.
Canadians have record high mortgage and consumer credit debt of $2.5 trillion as of June 2020 according to Statistics Canada, however, thanks to the Bank of Canada, the servicing costs on this debt is now lower.
With a stable, low-interest environment, it has never been a better time for homeowners to refinance to save interest costs and protect their credit scores.