Effective this morning the Bank of Canada has decreased its overnight lending rate by 50 basis points or .5%. Although many expected a rate drop in late 2020, this was certainly a more substantial drop than anticipated. This drop comes on the back of general weakness in the global economy due to the Coronavirus or COVID-19 outbreak and the .50% drop by the Federal Reserve yesterday, March 3rd 2020.
Before today, the last move in the Bank Prime Rate was in October of 2018.
This is a great announcement for both buyers and sellers in Calgary as the market hasn't been kind over the past 5 years. As we mentioned in our March Calgary Real Estate Market Report that we saw a massive jump by over 23% in the number of sales in February over 2019. There seems to be some great momentum in our market for 2020 as homes in certain areas and price ranges are poised for multiple offers or selling prior to hitting the market. Now it's nothing like what is happening in Toronto, and to be honest I'd rather have more of this market than what they are dealing with. When purchasing becomes more of an emotional decision vs analytical and market value-driven, there is trouble in the air.
And to compound on the momentum in the market along with the Bank of Canada rate drop, we also have the mortgage rules changes that take effect in April 2020.
The media is full of information (some correct and some incorrect) so we wanted to take some time to break down exactly how this affects mortgages and our clients in the Calgary, Residential Real Estate Market. We spoke to two of our mortgage brokers to get their insights.
"It is important to remember that the overnight lending rate effects variable-rate mortgages. There is a misconception in the market that the overnight lending rate effects five-year, fixed-rate mortgages. It’s actually the long-term bond market that drives fixed-rate mortgages. Over the last 3 months, fixed-rate mortgages have decreased as well. We’ve seen a reduction at all of the lenders." Said Lindsay Labrecque of SPIRE Mortgage Team with MMG Mortgages "To put this change into perspective, a borrower with a $300,000 mortgage and a variable rate will receive a reduction in payments of approximately $75 per month."
Chad More of Canada Mortgage Direct said "The last time we saw a rate drop by the Bank of Canada, the prime rate did NOT drop in a 1:1 ratio. I expect the Prime rate to drop between 0.25% or 0.35%. The full 0.50% rate drop will likely not be passed on to borrowers."
One thing that both Chad and Lindsay both wanted to make sure that future buyers know that these rate changes will affect variable mortgage rates. Fixed rates have seen decreases recently and what drives the fixed rates is the long term bond rates which are also in decline currently.
If you are a buyer in Calgary, this could be a great market for you to start making moves in!
Sellers, this too is a great time to get your home on the market prior to the rush of homes that could come once the snow goes away as we have some motivated buyers who cannot find good homes on the market, and I'm certain we are not the only real estate team and brokerage that has that!
Here is the history of the rates and changes in the past that the bank of canada has made which was sent to us this morning from the ATB.com/theOwl for your reference.