Bank of Canada decided NOT to raise the interest rates in April 2023

On April 12, the Bank of Canada (BoC) made an announcement that it would maintain the interest rates at 4.5%. This rate has been unchanged since January 2023, following several increases in the latter half of 2022. The stability of interest rates and the decreasing rate of inflation suggest that the Canadian economy may be beginning to stabilize. This stability allows newcomers to Canada to plan their budgets for large purchases and get a consistent rate of return on any guaranteed investment certificates (GICs).

However, Bank of Canada Governor Tiff Macklem says that the current monetary policy needs to remain restrictive to lower the inflation rate, and it is still possible that interest rates could rise higher. It is still too early to tell. Macklem pointed out in a news conference that the benefits of the higher interest rate will not be immediately apparent, as they usually come with a delay of between 18 and 24 months after measures are implemented. This is a factor in why prices are still so high for Canadians.

The interest rate has a significant impact on the average Canadian’s ability to make substantial purchases, such as a home or a car. Although the Canadian government recently amended an act that prevented non-Canadians and permanent residents from purchasing a home in Canada, the high interest rate means that mortgage rates will remain elevated for some time. This may be a cause for concern even for those with a locked-in mortgage rate that is up for renegotiation. However, a stable interest rate means that monthly mortgage payments will remain constant and enable newcomers and Canadians to budget and plan for the future.

Macklem told reporters that the labour market has remained tight, with unemployment at 5%, but businesses are starting to find it easier to find labour due to strong population growth. Macklem credits much of the growth to employers who use the Temporary Foreign Worker Program, which helps bring in additional skilled workers and reduces the number of job vacancies. Canada’s population is aging, and the economy relies on immigration to fill gaps in the labour force, keep essential services running, and benefit from their income tax contributions.

Last November, Canada released the Immigration Levels Plan 2023-2025, which contains the highest-ever targets for new permanent resident admissions at 500,000 per year by 2025. This will help ease the pressure to find skilled employees in high-demand sectors such as healthcare, construction, and professional and scientific services. Speaking about the benefits of immigration for reducing inflation, Macklem stated that increased immigration would rebalance supply and demand. Bank of Canada predicts that inflation will fall to around 3% in the middle of this year and decrease more gradually to the 2% target by the end of 2024.

The current high interest rates can be traced back to measures taken during the COVID-19 pandemic. At the time, the BoC slashed interest rates to reduce the financial burden on Canadians facing hardships while many workplaces were closed. As the economy rebounded and spending increased, more demand for products and services led businesses to raise prices, contributing to the high rate of inflation. Raising interest rates curbs spending and eases demand, allowing businesses to lower their prices, and the cost of living should come down. Inflation peaked in June 2022 at 8.1% and has since lowered to 5.2% as of February.

Greater Vancouver real estate market update for April 2023

 

The real estate market is currently experiencing a shortage of available inventory, which is causing a decline in seller interest in listing their properties. This is primarily due to the increase in borrowing costs, which has made it difficult for sellers to qualify for the same mortgage amount as in the past. Additionally, the stress test, which determines whether borrowers can afford mortgage payments at higher interest rates, has contributed to the decrease in inventory.

As a result of the lack of available inventory, there has been a slight increase in prices, and multiple offers are becoming more common. Many buyers who have been waiting on the sidelines are now ready to enter the market, but there are not enough properties to meet the demand. While statistics may not paint the full picture, current indicators suggest that prices are unlikely to decrease and may even continue to rise slightly, which is worth noting for potential buyers.

In addition to the limited inventory in the real estate market, the rental market is also strong, particularly in Vancouver, which remains the most expensive city in Canada to rent. The average cost of a one-bedroom unit in Vancouver is $2640, while a two-bedroom unit costs $3632. Burnaby also ranks as the third most expensive city in Canada for rent, with one-bedroom units costing $2282 and two-bedroom units costing $3175.

This strong rental market can be attributed to the shortage of available properties for rent, causing demand to exceed supply, resulting in a competitive rental market. Landlords have the upper hand, and tenants often must pay a higher price for a desirable rental property. While this may not be ideal for renters, it does present opportunities for investors looking to purchase and rent out properties in these cities.

Overall, the current state of the real estate market is due to a combination of factors, including the rise in borrowing costs, the stress test, and the lack of available properties for rent. While this has led to a slight increase in prices, it is unlikely to be a dramatic change. However, those looking to buy or rent in Vancouver or Burnaby should be aware of the current state of the market and the high associated costs.