Matching expectation the Bank of Canada this week announced that it was keeping interest rates steady which keeps prime at 3.95% for the foreseeable future. Global trade uncertainly along with adjusted growth numbers for the last two years have put interest rate increases on hold.
The Bank of Canada’s rate, known as the target or overnight rate, affects the interest rate borrowers and savers are offered from retail banks on savings accounts, mortgages, and other financial services.
The Bank raises its rate when it wants to cool down a hot economy and lowers it when it wants to encourage the public to borrow money in a slow economy. A healthy economy sits at its greatest potential at a 2% inflation rate, the bank’s target.
The Bank of Canada made a statement May 30th holding steady on their benchmark rate of 1.25%. Despite three interest rate increases since last July, the Bank of Canada has chosen not to increase again at this time, citing trade uncertainty, the slow housing market, and growing stressors in new markets.
2018 is the year of mortgage renewals in Alberta! This has been Mortgages for Less’ busiest year with mortgage renewals. A CIBC Capital Markets report says that an estimated 47 per cent of all existing mortgages will need to be renewed this year. A normal year sees 25 to 35 per cent of mortgage renew.
On May 9th, the Bank of Canada raised its Benchmark Qualifying rate. The Benchmark rate is the median average of the 5-year posted rates from the major six banks. Given recent rate increases over the past few weeks, that median rate increased this week by 20 basis points or 0.2% bringing the Benchmark rate from 5.14% to 5.34%.
What does this mean?
Canada’s housing market has long been considered quite overheated. This trend is mostly driven by the extreme markets of Vancouver and Toronto housing markets; these are the markets that government regulations that limit loan to value ratios among others were targeted at cooling. Conversely, the Fort McMurray housing market is crashing along with activity in the oil patch. But where does that leave Calgary’s housing market?