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HomeFeature Home Of The DayMonday's Feature Home Of The Day-Understanding Interest Rates And The Impact On...

Monday’s Feature Home Of The Day-Understanding Interest Rates And The Impact On Real Estate 

This article was written by David Ahrens, Realtor, Remax All Stars Realty Inc.

KAWARTHA LAKES-At this point, pretty much everyone has had a conversation about interest rates over the last couple of years. Here’s what is happening now. On June 5, 2024, the Bank of Canada reduced its key interest rate from 5% to 4.75%, a decision aimed at supporting economic growth and easing financial conditions as inflation shows signs of moderating​ (Bank of Canada)​​ (Yahoo Finance Canada)​. This 25 basis point cut marks the first change in the overnight lending rate in nearly a year and has significant implications for the Canadian economy, particularly the real estate market. As well, it’s notable that the Bank of Canada’s rate reduction is the first of any G7 countries to do so. 

National Real Estate Market Impact

The reduction in the interest rate is expected to provide some relief to homeowners with variable-rate mortgages, as their payments are directly tied to the Bank of Canada’s benchmark rate. With lower borrowing costs, these homeowners will see a reduction in their monthly mortgage payments, potentially increasing their disposable income and making homeownership more affordable​ (TD Stories)​.

For those with fixed-rate mortgages, the impact will be less immediate. Fixed rates are influenced by bond market conditions and investor confidence, which have already partially priced in the rate cut. Homeowners with fixed-rate mortgages up for renewal might not see significant savings, especially compared to the historically low rates secured during the pandemic​ (Yahoo Finance Canada)​.

The rate cut may also stimulate housing demand, as lower mortgage rates can make it easier for first-time buyers to enter the market and for existing homeowners to upgrade or refinance their homes. However, this could also exacerbate existing challenges in markets with tight supply and high prices, as increased demand may push prices even higher.

Impact on Kawartha Lakes Real Estate Market

In regions like Kawartha Lakes, Ontario, the rate cut could have notable local effects. Kawartha Lakes, known for its picturesque landscapes and appeal as a cottage and retirement destination, has seen robust real estate activity. Lower interest rates can further boost demand in this area, attracting more buyers who are looking to take advantage of reduced borrowing costs.

Local real estate agents in Kawartha Lakes anticipate that the rate reduction will bring more buyers into the market, potentially driving up prices as competition for available properties increases. This could be particularly significant for the market of vacation homes and cottages, which has been popular among urban dwellers seeking retreats from city life​ (TD Stories)​.

Moreover, lower rates may encourage more homeowners to refinance their properties, freeing up capital for renovations or investments, and possibly leading to an increase in the quality and value of homes on the market. However, buyers should be mindful of the broader economic conditions and potential future rate changes as the Bank of Canada continues to navigate the balance between stimulating growth and controlling inflation​ (Yahoo Finance Canada)​.  

From a local perspective, here is a 10 year trend graph from the Toronto Real Estate Board showing historical sales prices in Kawartha Lakes. You can see that there is definitely stabilization of prices recently and even some upward pressure. This may very well be the best opportunity for Buyers to get into the market. And the window will likely be relatively short before prices start rising again:

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The possibility of further rate reductions by the Bank of Canada remains a topic of keen interest among economists and financial analysts. Governor Tiff Macklem indicated that future rate cuts are “reasonable” to expect, contingent on the trajectory of economic data and inflation trends​ (Yahoo Finance Canada)​. Financial institutions like TD and CIBC predict that the central bank might implement additional cuts later in the year, potentially bringing the benchmark rate down to 4.25% or even 4% by the end of 2024​ (TD Stories)​. These predictions are based on continued signs of easing inflation and the need to support economic growth amidst global economic uncertainties. However, the Bank of Canada has emphasized a cautious approach, making decisions one step at a time to balance economic stimulation with the risk of reigniting inflation​ (Bank of Canada)​. Thus, while further rate reductions are on the table, they will be closely tied to ongoing economic assessments and the central bank’s commitment to maintaining price stability.

Conclusion

The Bank of Canada’s decision to cut interest rates to 4.75% is a strategic move to support economic stability and growth. While it brings immediate relief to some homeowners and stimulates housing market activity, its long-term impacts will depend on future rate adjustments and broader economic trends. In areas like Kawartha Lakes, the rate cut is expected to boost real estate activity, although buyers and homeowners should remain vigilant of market dynamics and future policy changes. It’s a great time to be a Buyer. Lower prices, even at elevated interest rates can still make good financial sense. Talk to your accountant or financial advisor, lawyer and real estate agent to see what’s right for you. And let’s stay hopeful for another rate reduction in the 3rd (and maybe 4th) quarter of the year!!

RE/MAX All-Stars Realty Inc., Brokerage

Call/text: 705-738-7661

www.DavidAhrens.ca

www.KawarthaProperty.ca

 

The trademarks MLS, Multiple Listing Service and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. The trademarks Realtor, Realtors and the Realtor logo are controlled by the Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA. Used under licence. 

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