What Interest Rates Mean For Real Estate
Well, the Bank of Canada finally did it. For the first time in seven years, the benchmark overnight rate went up a quarter of a percentage point. One must wonder, what does this mean for real estate? Well, what it means for real estate is what it means for the larger story that is the Canadian economy.
The first thing to keep in mind is this is a quarter of a percentage point. At one time, in the 80s, the overnight rate was above 20%! So let’s keep some perspective and remember not to head out and sell the farm, the sky isn’t falling and to be honest, this isn’t big news, but it is positive news.
The main reason the interest rate was hiked was the Canadian economy is doing much better than it has in years, returning to pre-recession levels. This is generally a good thing across the board because the price of oil is still under $50 a barrel. The last time the Canadian economy was humming, the price of oil was almost double what it is today, and at times was more than double. So first off, the Canadian economy is doing good in a world where non-renewables are not, and that is very promising for the future.
From a macro-perspective, what is good for Canada is always good for real estate. Household debt could obviously use a bit of cooling, and mortgage rates might inch up, but these are both things that have been in play for years. This is a much longer story, and today was simply a tip of the hat from the government’s central bank telling us they feel pretty good about all the GDP numbers they’re getting. They’re telling us things are fine. Interest rates dropped to a historical low during the last economic recession, so to see them start to inch back up should give us all a small sense of calm in 2017.