Bank of Canada Rate Announcement - Whats This Mean for Buyer & Sellers

On March 3rd, 2023, the Bank of Canada announced that it would be keeping its key interest rate unchanged at 4.50%. This decision is in line with market expectations and is good news for home buyers and sellers who are currently in the market or considering entering the market.

The key interest rate is the rate at which banks lend money to each other, and it serves as a benchmark for the interest rates that banks charge on loans to their customers. When the key interest rate is low, it makes borrowing money cheaper and more accessible, which can encourage home buyers to enter the market and drive-up demand for homes. Conversely, when the key interest rate is high, borrowing money becomes more expensive and can discourage home buyers from entering the market, which can drive down demand for homes.

Throughout the past year, we have seen consistent interest rate hikes from the Bank of Canada to grapple with rising inflation. Inflation eased to 5.9% in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians. With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.

Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year. Year-over-year measures of core inflation ticked down to about 5%, and 3-month measures are around 3½%. Both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.

For current home buyers, the Bank of Canada's decision to keep the key interest rate unchanged means that mortgage rates are likely to remain stable in the near term. This is good news for those who are looking to buy a home because it means that they can continue to access affordable financing options. Additionally, with stable mortgage rates, home buyers can better plan for their future expenses and budget accordingly.

For current home sellers, the Bank of Canada's decision is also positive news. When mortgage rates are stable, it means that there is a steady stream of potential buyers in the market who are able to secure financing for their home purchases. This can increase the chances of a successful sale and reduce the time that a home spends on the market. Additionally, with a stable market, sellers can better price their homes and ensure that they are not over or underpricing their property.

However, it's important to note that the housing market can be influenced by many factors beyond just the key interest rate. Factors such as supply and demand, employment rates, and government policies can all impact the housing market and should be taken into consideration by both buyers and sellers. Paying close attention to the market in the upcoming months is crucial and will determine if we are set to see a further increase in the future or a continued pause. 

Overall, the Bank of Canada's decision to keep the key interest rate unchanged is good news for home buyers and sellers. With stable mortgage rates, home buyers can continue to access affordable financing options, and sellers can benefit from a steady stream of potential buyers in the market. As always, it's important to stay informed about the housing market and work with a trusted real estate professional to navigate the buying or selling process. If you’re considering on buying or selling in the near future and want to know how the market affects your personal situation, reach out and I’d be happy to help you take the next step. 

Michael Simone