Bank of Canada rate cuts make homes more affordable

Real Estate Matters – December 15, 2008.

The latest in a succession of interest rate cuts by Canada’s federal bank have helped to make home ownership a more affordable proposition for some Canadians. The Bank of Canada lowered its benchmark overnight lending rate by three quarters of a percentage point to 1.5% at its setting on December 9, 2008. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, declined to 1.75%. The Bank has repeatedly lowered its policy interest rate to support economic growth throughout the year, including October’s half percentage point cut as part of coordinated interest rate cuts with other central banks. Since December 2007, the Bank has cut its overnight lending rate by a total of three per cent.

These interest rates are designed to stimulate the economy, and that spells good news for all Canadians, including home buyers and sellers. As mortgage interest rates decline, so do the carrying costs on a home. Suddenly, buyers can afford more home for their money, or can carry the same home for less cost than just a few months earlier. This improved affordability makes this a great time to buy a home. And as more buyers begin to realize this and get off the fence, that spells good news for the housing industry and the economy in general. In fact, the Chief Economist of the Canadian Real Estate Association (CREA) states that “Canada is in better shape to weather the global economic recession than many other countries. Lower interest rates and a lower Canadian dollar will support economic growth, as will expected government spending.”

When posting the latest rate cut, the federal Bank acknowledged that households have become cautious due to the global economic recession and credit crunch, and has hinted at additional cuts when it next meets in January to set its policy interest rates. If that occurs, home affordability will get that much better.

Meanwhile, many real estate markets across Canada have larger inventories of homes for sale right now than we’ve seen in recent years. As your local Coldwell Banker® real estate representative will tell you, a market with a high inventory of listings means buyers have a lot to choose from and sellers have more competition to attract viewers to their listing and win offers. Want to know more about how much home you can afford in today’s market? Contact your Coldwell Banker representative, and get the benefit of their experience. You’ll be glad you called us first!