Homebuyers will have to wait a little longer for interest rate relief as the Bank of Canada announced today that it was holding the overnight lending rate at 5%. This is the third time this year that the Bank has held interest rates. Many economists predict that rate cuts are coming this summer, yet the exact timing for the first rate cut in four years will depend on the growth of the economy.
“Prospective buyers eyeing the market this year should keep in mind that a drop in interest rates might spark a surge in market activity,” explains Carrie Lysenko, Zoocasa CEO. This would result in increased bidding wars, driving up property prices. “Ultimately, deciding whether to buy a home now or wait for interest rate relief hinges on a careful evaluation of your financial situation and ability to handle mortgage payment changes.”
Fixed Rates are Stabilizing
The good news for homebuyers is that fixed rates have been trending downward for the past few months. Since January 2024, some 5-year fixed rates have been hovering around 4.84%, while the most current rates are even lower at 4.79%. In a recent Zoocasa survey of more than 1,500 homeowners, the majority of respondents expressed confidence in their ability to comfortably make their mortgage payments even if interest rates were to rise (35.9%). Only 4.1% of homeowners said they definitely could not manage their payments if rates went up.
“Any indication of rate cuts coming sooner will cause bond yields to drop and fixed rates to follow suit and will put upward pressure on home values,” explains James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender.
Demand Building as Spring Market Approaches
The overnight lending rate has been above 4% for over a year (since January 2023). This has created an atmosphere of uncertainty and hesitation for buyers and sellers, which in turn resulted in a slowdown in national sales in the second half of 2023. But with the expectation that high borrowing conditions will not last much longer, buyers are regaining confidence in the market.
In March, month-over-month home sales were up by 17% in Toronto Region, with Mississauga, Burlington, and Oakville all experiencing a more than 15% month-over-month increase in sales.
It’s not just the Ontario market that is seeing momentum build; Vancouver home sales were up 16.7% month-over-month and Calgary sales were up 24.8% month-over-month in March. Increased demand is also giving sellers the confidence to list. New listings jumped up by 15% in Toronto Region from February to March, while in Greater Vancouver new listings increased by nearly 10%.
“This strong start to the housing market will cause the Bank to be cautious in indicating when the first rate cut might occur in order to not add more fuel to the fire,” adds Laird.
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