The Bank of Canada opted not to raise its benchmark rate yesterday, holding it at 1.75% amid a sputtering economy and languid real estate market.
Statistics Canada reported late last week that the country’s economy grew by only 0.1% during the fourth quarter of 2018, slowing the annualized pace to 0.4% and marking a two-and-a-half-year nadir. In light of the report, not to mention a slumping oil and gas sector, few, if anybody, expected a rate hike this week.
“The Bank of Canada softened its stance on future rate increases,” said CanWise Financial’s President and Broker of Record James Laird. “Canada's labour market remains strong, inflation rates remain below target, however, the Bank has cited concerns with consumer confidence, business investment, and household spending in energy-producing provinces.”
Added Alex McFadyen, a broker with DLC Canadian Mortgage Experts: “With the fact that we’d seen a significant number of increases in a short amount of time, and other lending guidelines that have come in during the last year and a half, there’s been more of an impact on the housing market and that could be part of (the decision to hold rates).”
While it is highly unlikely the Bank of Canada lowers rates, there is a very good chance that it at least holds them until next year. In the interim, there is also opportunity to help first-time homebuyers gain entry into the market, says Laird.
“The softening rate outlook will put downward pressure on bond yields, causing fixed rates to drop as we enter the spring homebuying market,” he said. “Variable rate holders should be pleased, as any increase to prime rate will be further in the future than the Bank has signaled in prior rate announcements. Overall this announcement will be helpful to first-time homebuyers looking to enter the housing market this spring."
New Democratic Party leader Jagmeet Singh mulled the idea last month of reintroducing the 30-year amortization and McFadyen believes that will be more instrumental in helping first-time buyers than a steady interest rate.
“The NDP has come out and supported the idea of bringing back the 30-year amortization again, and that’s potentially good news for first-time buyers,” said McFadyen. “Anything that enables insured mortgages to have more flexibility to get first-time buyers into the market is, in my opinion, a good thing.”