Rate relief?

For homeowners and prospective buyers, interest rate cuts are welcome news ― but what does it really mean? 

Rate relief? rate London Inc. RealtyARE PENDING BANK of Canada rate cuts the panacea to this “slow” real estate market?  It’s worth a closer look. 

 The last update from LSTAR (London and St. Thomas Real Estate Board) for the week ending October 3 showed 91 sales for the week. That continues to be a third less than historic trends. This lack of demand ― despite a record-setting supply of listings ― comes after three rate cuts from the Bank of Canada have been adsorbed. 

Variable rate mortgages are ranging from 5.3 to 5.7 per cent at the moment (let’s assume 5.5 per cent for the purposes of this illustration). Five-year fixed rate mortgages are available at about 4.5 per cent currently, depending on credit quality, down payment, etc.  So, variable rate mortgage of 5.5 per cent (floating up and down with prime), and fixed five-year mortgage of 4.5 per cent.

Variable rates will follow the expected falling bank rate over the next year. Common wisdom is the overnight rate will fall from 4.25 per cent (down from five per cent just three months ago) to approximately 2.5 per cent. No one can predict that rate of fall, but it is likely within the next 12 months. Over that measured drop in the overnight rate, variable rate mortgages will fall from their current 5.5 per cent down to approximately 3.75 per cent (note this is only 0.75 per cent better than the currently secure five-year mortgage rate).

After a long winter, spring may not bring a real estate market renewal. Certainly not a sure thing to be betting on

Fixed mortgage rates will not necessarily follow the bank rate decline over the next year. Fixed rate mortgages are impacted by the bond market, as chartered banks and mortgage lenders hedge their mortgage loans with U.S. and Canadian bond purchases. The bond market has already priced in the expected future rate reductions forecast by the economists on both sides of the border. The projected five-year mortgage rates won’t likely move down more than a half point, before inching back up in the future.  Five-year fixed rates won’t likely fall below four per cent and may push back up again.

Floating rate variable mortgages may fall to just under four per cent this next year. Fixed rate mortgages may fall to just over four per cent this year. That’s about a half point better than is currently available for a five-year fixed term mortgage. That represents very little improved affordability for real estate buyers supposedly sitting on the sidelines waiting for interest rates or prices to fall.

There is unprecedented inventory for homes available to buy today. That number is expected to increase. Mortgage rates won’t be changing significantly in the coming months and won’t have much of an affect on affordability. It is possible the “malaise” in the market will continue. After a long winter, spring may not bring a real estate market renewal. Certainly not a sure thing to be betting on.

As always, a property is worth what someone is willing to pay for it. In the coming months and year, given the growing inventory, that number may not be higher ― it’s just as likely it could be lower.

Market analysis provided by Marcus Plowright, Sales Representative, A Team London. Marcus can be reached at 519-872-8326 or [email protected].

High- and low-priced real estate listings around town this week

London East

Low

Rate relief? rate London Inc. Realty

Address: 1784 Parkhurst Avenue
MLS number: X9372316
List price: $299,900
Days on market: 11
Size: 2 bedroom, 1 bathroom, 700-1,100 square feet
Listing agent: Ty Giles, Broker, Saker Realty Corporation

High

Rate relief? rate London Inc. Realty

Address: 129 John Street
MLS number: X9234740
List price: $5,595,000

Days on market: 68
Size: 9 bedrooms, 19 bathrooms, 5,000+ square feet
Listing agent: Trent Forristal, Salesperson, Sutton Group – Select Realty, Brokerage

London North

Low

Rate relief? rate London Inc. Realty

Address: 28 Ranchwood Crescent
MLS number: X9355009
List price: $400,000
Days on market: 20
Size: 4 bedroom, 3 bathroom
Listing agent: Patrick Lexima, Sales Representative, One Percent Realty Ltd.

High

Rate relief? rate London Inc. Realty

Address: 864 Clearview Avenue
MLS number: X9298104
List price: $4,675,000
Days on market: 34
Size: 5 bedrooms, 6 bathrooms, 5,000-plus square feet
Listing agent: Michael Reis, Sales Representative, Sotheby’s International Realty Canada

London South & West

Low

Rate relief? rate London Inc. Realty

Address: 294 Wharncliffe Road South
MLS number: X9346193
List price: $429,900
Days on market: 26
Size: 3 bedroom, 2 bathroom
Listing agent: Chris Howlett, Broker, PC275 Realty Inc.

High

Rate relief? rate London Inc. Realty

Address: 1011 Cherrygrove Drive
MLS number: X9053822
List price: $4,250,000
Days on market: 76
Size: 4 bedrooms, 4 bathrooms, 5,000-plus square feet
Listing agent: James Smith, Sales Representative, Sutton Group – Select Realty


Disclaimer: London Inc. does not guarantee the accuracy of the statistical data on this page. The data does not represent the listings of any one agent or agency but represents the activity of the real estate community in the area. Any real estate agent’s ad appearing is separate from the statistical data provided, which is in no way a part of their advertisement.

Share via
Copy link
Powered by Social Snap