Virus fears have spread to the Canadian housing market as the Bank of Canada slashed the overnight rate Wednesday by 50 basis points to 1.25%. It’s a significant reduction considering the last time a cut of this size happened was during the global financial crisis 11 years ago. The BOC also hinted that additional rate cuts may follow.
Bank could adjust monetary policy further
If you weigh the BOC cut on Wednesday with the loosening stress test changes scheduled to happen April 6th – you can see how an already hot Canadian housing market could become an inferno. It all means an significant boost in the mortgage amount people could qualify for. Some housing commentators suggesting that increase could be as high as 7 per cent.
Loosening of the housing policy is sure to help more borrowers qualify for mortgages, with higher loans. Hence, adding more fuel to an already out-of-control housing fire. Also. Consider this. Inventory remains historically low in most major Canadian housing markets and the average home price is expected to rise by 3.7% next year. And millennials are moving into their peak earning years and could drive the market in 2020.
James Laird, Co-founder of Ratehub.ca and President of CanWise Financial mortgage brokerage calls the BOC cut “the most significant Bank of Canada announcement in recent history.”
Laird expects consumers – currently on a variable rate – will see their mortgage payments drop once Canadian mortgage lenders adjust their prime rates, likely this week. Laird says anyone shopping for a home should check rates frequently as rates will continue to decrease through the spring.
Speaking after the changes to the mortgage stress test were announced on February 18th, Canadian Real Estate Association CEO Michael Bourque said the tweak “introduces a more dynamic measure to act as a minimum qualifying rate.” Bourque called the move “more responsive.”
Bourque said CREA is pushing the Office of the Superintendent of Financial Institutions (OSFI) as they consider the same benchmark rate for uninsured mortgages.
The Canadian Real Estate Association is also pushing for the government to allow existing mortgage holders to be exempted from the stress test at the time you are up for renewal.