By Ilan Joseph, Broker, ABR®, e-PRO®, AMP® | IlanJoseph.com
January 30, 2014 | © All rights reserved
Banks are at it again, snipping away at interest rates. The good news is we'll continue to see historically low rates for the foreseeable future.
Here are are five questions to better understand it all:
Why should we care about interest rates right now?
Uncertainty. Yes, this one word sums it all up. Uncertainty is the reason so much attention is focused on lending rates. Interest rates drive the Canadian economy and directly affects how the Toronto, Vaughan and Thornhill housing markets perform. With the real estate market seeing fewer sales, the banks are starting to get more agressive in their ratesm competing with one another to offer you, the borrower better rates.
Why does everyone watch what the Bank of Canada is doing?
The Bank of Canada is the 'Great Almighty' when is comes to the world of finances. Rates are set by lenders based on the BoC’s key rate which is currently sitting at 1%. As mentioned above, these rates are historically low. In the past this rate was lower amongst all the central banks worldwide, which contributed to the global recession we witnessed towards the end of the 2010's.
Another downside of low rates is the higher cost of real estate. With lower rates, more people enter the market, putting pressure on an already low supply of detached, semi-detached and townhouse properties throughout Toronto, Vaughan and Thornhill. Rates are at historical lows, but prices find themselves at the opposite side of that spectrum.
If low rates has consequences, why doesn't the BoC raise its rate?
Because you can't afford it! Ummm...What? Yea I said it, you can't afford it - WE can't afford it. With higher rates comes higher payments. Imagine just a moderate hike of .7% on a fixed rate mortgage at 3.5% would increase monthly interest payments by 20%! Could you afford that? Even if You could, most Canadian can't, which would mean a great deal of people would start defaulting on their mortgages, something the BoC and the Ministry of Finance is working hard to avoid.
Will 2014 see interest rates rise or fall?
The experts are suggesting rates won't be going anywhere anytime soon.
TD Bank just last week said, “We remain comfortable with our forecast for interest rate hikes to be a long way off on the horizon, likely in the second half of 2015.”
I don't anticipate the Bank of Canada lowering its rate below 1% unless the Canadian economy was in dire need for drastic measures to be taken to revive it. There is nothing to suggest such a scenario is near. Lowering rates would only encourage the already highly leveraged average Canadian household to borrow more - something you (WE) can't afford.
If you have any questions about the home buying process or would like some information about the Toronto, Vaughan or Thornhill real estate market, feel free to contact me.
CONTACT ILAN NOW FOR A MORE PERSONALISED SEARCH EXPERIENCE!
Ilan Joseph is a Real Estate Broker with Sutton Group and is co-founder of a 10-person award-winning Toronto, Thornhill and Vaughan real estate team.
You can find him on LinkedIn, Twitter, YouTube and Google+.
For over 10 years, Ilan has provided more than 1500 buyers and sellers valued advice and service, enabling them to reach their real estate goals.
He’s kind of like the Bruce Willis of real estate.