The Bank of Canada (BOC) met yesterday for their 8th, and final, meeting of 2023. The purpose of that meeting was to advise about the policy interest rate known as the overnight lending rate and to summarize the current state of our economy.
The overnight lending rate correlates directly with Prime Rate which affects any variable rate or adjustable rate mortgages, home equity lines of credit (HELOC) and any other financial products based off Prime.
The BOC maintained their rate so Prime Rate remains unchanged at 7.20%. How will this decision affect you?
Fixed Rate Mortgages will see no change to interest rate or mortgage payment.
Adjustable Rate Mortgages (ARM) & Variable Rate Mortgages (VRM) will see no change to interest rate or mortgage payment.
Home Equity Lines of Credit (HELOC) will see no change to the interest rate.
According to the BOC …
“… economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter. Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year. Exports and inventory adjustment subtracted from GDP growth in the third quarter, while government spending and new home construction provided a boost. The labour market continues to ease: job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly. Even so, wages are still rising by 4-5%. Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand”
So, good news right?
This is the third meeting in a row where no change has occurred. At this point, the expectation from most economists is that the rate hike cycle is over and the next milestone will be the first rate cut.
The Bank of Canada maintains their sentiment that rates will not come down until mid-2025 however, some economists are forecasting the first cut in March or April.
The prospect of rate and market stability will likely motivate potential buyers and sellers who have been waiting on the sidelines. Thus we can expect an uptick in housing demand in the near future.
If you have been thinking of a move in 2024 it will be important to consider, markets are still undersupplied. So despite Fraser Valley home sales falling for the last five months in a row, when demand picks up, pricing will likely follow.
For an insured home purchase (buying with less than 20% for down payment), it doesn’t take much of a price increase to offset the savings of an interest rate decrease.
- 0.25% rate decrease is offset by a 2.2% increase in purchase price.
- 0.5% rate decrease is offset by a 4.5% increase in purchase price
- 1.0% rate decrease is offset by a 9.9% increase in purchase price
And with increases to purchase price, Down Payment also needs to increase.
Not so good news.
With the holiday season upon us its likely buyers and sellers will continue to wait on the sidelines but if your considering a move next year, now would be a good time to meet with you local realtor to talk value, costs and timing.
If that’s us, call to book your no obligation home evaluation.
We can help you get your reindeer in a row.
Jenn & Colin