The Bank of Canada’s decision yesterday to hold its overnight rate likely means a prolonged low-rate period to pick up slack from COVID-19 battered economy, say analysts.
Economists and mortgage professionals say the current key interest rate of 0.25 per cent, set in March during the early days of the pandemic, is the low bound of Canadian rates. They say the Bank is unlikely to lower rates further. While the bank gave positive signals about Canada’s management of the COVID-19 outbreak, economists predict a long road to recovery and a significant period of low interest rates to compensate.
Brokers have time to practice prudence
James Laird, founder and CEO of ratehub.ca says that in an unusually busy summer for brokers, the decreased likelihood of a looming rate hike means brokers can still practice prudence with clients and prospects.
“We have access to historically low rates so real estate transactions are rebounding right now,” Laird says. “It looks as though those strong options should be available for a while. Brokers with their clients, as they always should, should take their time. If they're purchasing a home, they should find the right home. If they want to do a refinance, they should get everything in order and then they should go ahead and transact. They shouldn't just be rushing out to get today's best rate if the rest of their finances are not in order.”
Laird says that the announcement should give Canadians confidence that fixed and variable rates will remain at their historic lows until the economy is back to pre-pandemic levels. He says that as real estate markets rebound, competition between lenders will continue to inch fixed and variable rates down.
Economists don’t see rates rising soon
A survey of economists by Finder found that almost two-thirds think the current rates will hold until 2022 or 2023. They agreed, as well, that Canadian housing prices will should hold steady, averaging a two per cent price decline. With such stagnation in property values, almost half the economists surveyed by Finder now view housing affordability positively, up from only 9 per cent in one of the firm’s pre-COVID-19 polls.
Moshe Lander, economics professor at Concordia University, says that the Canadian economy is unprepared for a second wave, which will depress growth and keep rates low.
“The economy is opening up based on positive news regarding coronavirus infections, recoveries, etc., but the economy has done very little to prepare itself for if, or when, a second wave returns in the fall,” Lander said in a press release from Finder. “Those safeguards should be put in place now while there is time rather than in haste and haphazardly when it strikes, to limit the economic damage.”