Experts Signal Potential Affordability Trough Following Central Bank Rate Decision
Homebuyers and sellers aren’t likely to see significant changes in the real estate market anytime soon, but it’s possible that prices have reached their lowest point, mortgage experts say.
On Wednesday, the Bank of Canada announced it would hold its key interest rate for the fifth time in row at 2.25 per cent, as economists had expected.
The rate has been the same since October, when the central bank cut it by 25 basis points.
Penelope Graham, mortgage expert at Ratehub.ca, said interest rates will likely remain stagnant for the foreseeable future, however any change would most likely see rates increase, rather than decrease.
“If you’re a motivated buyer, and you’ve been keeping an eye on conditions, this might be the window where you consider, ‘OK, I’m going to make my move now,’ because it’s likely not going to become more attractive in the near future,” she said, adding “we might be at an affordability bottom.”
While many prospective buyers have been holding off on purchasing a home due to economic uncertainty, recent national and regional data has shown “modest improvement in sales demand,” which could be an early sign of a slight market recovery, she said.
“We’re starting to see some heating factors in the real estate market that could push prices up,” she said.
GTA realtor Othneil Litchmore, however, believes the Bank of Canada would need to dramatically reduce its key interest rate in order to spur any meaningful increase in home-buying activity.
While buyers experienced “frenetic and exhausting” activity between 2020 and 2022 — with prices rising and interest rate announcements triggering responses from homebuyers — the market has returned to “almost normal territory.”
Now, buyers are more concerned with the economy, job stability and sticker prices, over interest rates.
“People are going back to the fundamentals,” Litchmore said.
Clay Jarvis, mortgage expert at NerdWallet, emphasized that affordability remains a challenge for buyers.
“With the bank holding the rate today, there’s really no extra shot of stimulus or motivation for buyers because prices are the same, rates are the same,” he said. “Without there being any material difference affecting homebuyers, I don’t see how the market really turns a corner.”
Renewing homeowners, meanwhile, have gone since before Halloween without any signs they’ll get some relief when they sign a new contract, he added.
Mortgages with fixed rates, which are tied to the bond market, are also unlikely to decrease, Jarvis said.
”(The bond market) has been thrown into disarray because of the war in Iran,” he said. “Until that sorts itself out and the threat to the global oil supply is ironed out, then those bond yields can’t fall. And until those fall, lenders can’t move their fixed rates.”
Graham added that while fixed-rate mortgages are not directly affected by Bank of Canada announcements, “the factors that are influencing the Bank of Canada’s rate hold have also kept bond yields elevated, really, over the past couple of months now.”
Those factors have included spiking oil prices, rising inflation expectations, and investor expectations that there won’t be rate cuts soon, as well as the U.S. treasury bond yield being high.
“All of that does continue to put upward pressure on fixed rates,” she said.
At the same time, a recent report suggests current home prices, which have fallen significantly since many homeowners first got their mortgages, could also spell trouble for some.
If prices remain at their current levels, about nine per cent of mortgage holders in the Toronto area could fail to qualify to refinance their homes in 2027, according to the central bank’s financial stability report published in May.
“Households that need to refinance to manage their payments may not qualify if they have too little equity to meet lenders’ requirements,” the report reads. “In this way, lower home prices increase the risk that some households could fall behind on their payments.”
This article was first reported by The Star
