After a full 12 months of “will they, or won’t they,” it’s official – the Bank of Canada went the entirety of 2019 without changing its Overnight Lending Rate. The trend-setting rate, which sets the cost of variable borrowing for Canada’s consumer lenders, remains at 1.75% where it has been since October 2018.
It’s somewhat of an anticlimactic close to a year fraught with global economic uncertainty; rising trade tensions between the U.S. and China prompted central banks around the world – including the U.S. Federal Reserve – to slash their interest rates throughout the year in order to promote spending amid recession fears. Notably, the BoC managed to buck that trend right up to its December 4th announcement, citing growing optimism that the global economic picture looked to be stabilizing.
“There is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years,” stated the Bank’s release.
While the threat of a major economic event still looms, the BoC believes the overall risk of recession has receded, as the benefits of looser monetary policy put in place by other central banks is being felt on an international scale.
The Bank also expressed strong confidence that Canada remains on solid economic footing; not only did growth through the end of the year unfold largely as it predicted in its October Monetary Policy Report, with consumer spending up 1.3% in Q3, wages saw significant improvement and business investment received a boost. Perhaps most importantly, core inflation stuck close to its 2% target and is expected to do so over the next two years, signalling the economy is operating close to capacity. With this measure solidly in place, it’s unlikely the BoC will move to cut rates in the near future, barring any unforeseen global economic incident.
With all this in mind, how likely is it that the BoC will keep its status quo on rates in the new year? According to the latest November Reuters poll of economists, a rate cut – much less a hike – is sounding increasingly unlikely. Not only did the 30-person panel unanimously call for an end-of-year rate hold, but that the pattern would continue throughout 2020. Recent comments made in Ottawa by BoC Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins that current monetary policy is “about right” have likely also assured policy watchers that a cut isn’t in the cards.
In terms of housing activity, 2019 will go on the books as a year of recovery; sales and price growth rebounded in many of Canada’s largest urban markets after softening over 2017 – 2018. Much of this is due to borrowers becoming normalized to new real estate taxes and the federal mortgage stress test – but the record-low mortgage rates currently available are undoubtedly a factor.
According to rate comparison sites, both five-year fixed and variable rates for competitive, high-ratio borrowers, can be had in the 2.5% range. What’s more, the spread between fixed and variable options has become minimal, with fixed outpricing the latter in some instances – a highly unusual development as variable-rate mortgages are historically the more economical choice. Borrowers can thank stability in the bond market for steep fixed-rate discounting, as investors have been able to rest easy without the thread of a rate hike this year.
As a result, most major housing markets are poised for an uptick in both sales and prices in 2020, according to a number of market analysts. For example, Capital Economics is calling for national house price growth to rebound by at least 6% in the next 12 months as a direct impact from low mortgage rates, and a tightening supply-and-demand gap due to a lack of MLS listings.
This forecast is echoed by the Canada Mortgage and Housing Corporation, which says housing activity will strongly increase over the next two years. Stated Chief Economist Bob Dugan in its recent Housing Market Outlook, “Housing starts are projected to stabilize in 2020 and 2021 at levels in line with long-run averages. This follows two years of declines from elevated levels in 2017. Resale activity and house prices expected to fully recover from recent declines, supported by growth in income and population.”
From a national perspective, sales will hit 497,000 transactions next year, with the average price rising 6.3% to $531,000.
Ontario real estate sales are expected to grow by 7.2% next year with 213,800 sales, while average prices are set to rise by 6.5% to $633,700. Activity will improve at a slower pace in the Alberta market, which will see a 4.2% increase in sales with 56,900 to sell, while the average price is boosted by 2% to $383,400.
The strongest recovery though, will be in the British Columbia market, where sales are poised to boom by a whopping 22.6% in 2020 at 84,400 transactions, while average home prices will rise by 3.6% to $749,500.
In all, it’s looking as though 2020 will usher in another year of cheap borrowing and stimulative real estate activity. It may be an ideal time for sidelined clients to re-evaluate their chances in the real estate market and re-examine their mortgage options.
Penelope Graham is the Managing Editor at Zoocasa, a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings at zoocasa.com or download our free iOS app.