The Canadian housing market made it to the 2020’s headlines throughout the year. Canadian real estate experienced record-breaking activity despite the pandemic and financial challenges. 2021 started on the same note, with many key housing market indicators continuing to set records. According to the Canadian Real Estate Association, over 714,000 homes were sold last year, and low mortgage rates encourage buyers to jump into the hot market.
However, potential buyers face the obstacle of low inventory in many parts of the country, especially for single-family homes. Home sales in January were up 35.2% compared with a year earlier and inching up 2% month-over-month from December. CREA says Canada has only 1.9 months of housing inventory available — the lowest reading on record for this measure. At the local market level, some 35 Ontario markets were under one month of inventory at the end of January 2021. Historically low mortgage rates, demand for larger living spaces and shortage of supply have resulted in bidding wars in many markets across the country.
The Bank of Canada announced on January 2021 that it would continue to maintain the overnight rate at 0.25%.⠀The surge in COVID-19 cases during the second wave and the disappointing vaccine rollout forecasts for a negative economy in the first quarter impacted the decision. The Bank of Canada has been consistent in its announcements that it plans to hold the current rate until 2023. It forecasted that the growth in the first quarter of 2021 is expected to be negative.
The Bank of Canada’s overnight rate directly influences the variable-rate mortgages, and the bond market impacts the fixed-rate mortgages. The 5-year Government of Canada (GoC) benchmark bond yields in February are almost double last year’s lows. These rates drive the five-year fixed mortgage rates; they are likely to rise in the next few coming months even if the overnight rate remains untouched for the following year.
The first quarter’s economic recovery now has roughly 1.7% annualized GDP, much faster than the BoC’s forecast of 2.5%. How does that impact the mortgage rate? It means there is a scope to raise interest rates earlier than the 2023 timeline that has been consistently overcommitted in BoC’s announcements in the last couple of months. A number of lenders have responded by starting to raise some of their mortgage rates apart from the big six banks as of now.
What does it mean for a homebuyer? Of course, the low mortgage rates won’t remain low indefinitely. If you have been actively house hunting, lock the low rates today if you are leaning towards a fixed mortgage. Get pre-approved to save yourself from any disappointments later.
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If you’re ready to get started with your mortgage process, feel free to reach out to us for any questions related to home buying. We can help you to get all your mortgage-related queries answered. You can reach us at 905.997.7001 or email us at firstname.lastname@example.org to begin your home buying journey.