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Mortgage Rates Steady as Bank of Canada Holds Interest Rate

by Cristina Oprean
3 min. read

Photo: Jane Rix / Shutterstock

In line with economists’ expectations, officials at the Bank of Canada (BoC) announced they are holding the benchmark interest rate at 1.75%.

Slow Growth Expected

The Bank of Canada meets every six weeks to revise the interest rate. Typically, officials aim to reduce the rate when the economy is slow and in need of an incentive. When it is strong and growing quickly, they tend to raise rates to keep this growth under control.

In January, the bank predicted Canada’s economy to increase by 1.7% for the year, but they downgraded this forecast to 1.2% in their latest meeting. The bank expects little improvement in the first half of 2019, so it is maintaining a reduced interest rate to help stimulate the economy.

BoC’s Low Benchmark Rate

So what does this mean for Canada real estate? The bank’s benchmark rate affects the interest rates that retail banks give to customers’ mortgages. A low benchmark rate will lead to lower interest rates both for new homebuyers and for homeowners with variable interest rates. James Laird, Ratehub co-founder, told the CBC:

“Anyone with a variable rate mortgage should be pleased with this announcement because it diminishes the timing and likelihood of any increase to the prime rate.”

Laird went on to say that new homebuyers benefit by facing more stable fixed rates, especially throughout the spring and summer home-buying seasons.

Despite years of rapid increases, recent reports by the Canadian Real Estate Association (CREA) found home prices are now falling across the country. According to CREA, the average price of a Canadian home sold in March fell to $481,745. That’s a decrease of 1.8% in the last 12 months. The report also found that 2019 was the weakest year for March home sales since 2013.

Another impact of BoC maintaining its low interest rate is the value of the Canadian dollar. CIBC economist Royce Mendes stated:

“The bank’s pivot away from its hiking bias was sharper than expected today, leaving the Canadian dollar trading weaker and yields lower on the day.”

While the bank’s decision to maintain a low benchmark interest rate comes as a result of an underwhelming economy, it creates an excellent opportunity for new homebuyers. Those looking for the right time to purchase their first home will likely take advantage of the lower mortgage rates.

Economic Outlook for Rest of 2019

The bank argues that while the economy has been slower than expected in the first half of 2019, it is likely to gain momentum in the second half of the year. Still, investment trading in overnight index swaps indicates no possibility of a benchmark rate hike anytime this year. Traders actually claim there’s a 10% chance the bank will cut the rate even further as soon as next month. The odds increase to 33% for September.

According to the CREA, the House Price Index for the Canadian housing market fell 0.5% in March. That’s the largest decline in the Index since 2009. However, some cities were noticeable exceptions. For example, Ottawa, Montreal, and Vancouver Island March’s HPI was up over 5%.

With a low benchmark rate now and maybe even lower rates coming later this year, a more accessible Canadian housing market in 2019 is becoming more and more likely. Owners looking to sell their homes may find this trend discouraging, but variable rate mortgage owners and new homebuyers will benefit significantly.


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