Bank Of Canada Interest Rate Cut: Are We Overreacting?

Maybe I’m not, and maybe you’re not, but there’s a LOT of people who are!

I know the BOC announcement last week was shocking, and caught us all off guard.

But is it really going to have an effect on the real estate market?  Are buyers really going to enter the market now who weren’t going to enter the market before?  It sounds ludicrous to me, and the overreaction is fierce.

Since when does ten basis points alter one’s life?

 

Call me childish, but I enjoyed it…

I spoke to three reporters/columnists last week who wanted to know if I was receiving “more calls” from potential buyers, now that the BOC cut the overnight lending rate, and it made me shake my head.

First of all, none of the big five banks have cut their 5-year fixed mortgage rates yet.  They’d have to basically collude in order for a cut not to happen, but once one of them cuts, they’ll all follow.

Secondly, and as I said at the end of the video would ten basis points REALLY get somebody new into the market?

And lastly, aside from hearing about the amount of air in footballs thrown by New England Patriots’ quarterback Tom Brady, I think this was the most overblown story of the week.

The BOC rate cut has all kinds of impact in other industries, but in real estate?  Geez, I shudder to think…

16 Comments

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  1. Steve says:

    The American FED may still raise rates later this year ….

    1. mortgagejake says:

      I don’t think that will have much bearing on our market or rates if our dollar hits 75 cents, and oil is still lower than Barry White’s voice.

  2. El Mike-o says:

    “Guy who Over Reacts to Cut to BOC Overnight Lending Rate” = COMEDY GOLD!!!
    You should do more characters!

  3. Long Time Realtor says:

    TD Canada Trust and RBC cut interest rates: http://business.financialpost.com/2015/01/26/one-rate-cut-the-banks-are-more-than-willing-to-pass-on-to-you/

    Oops. Savings rates, that is.

    I thought price-fixing and collusion were illegal in Canada, yet not one bank has lowered their prime rate. This is really getting smelly.

    Where is the Competition Bureau on this one? Oh yeah, almost forgot. Canadian banks are too big to fail and too big to jail.

  4. Wut says:

    The msm overreacts to everything. You’re overreacting to their overreaction.

    Bottom line is, the trend for rates is now down, instead of up. This is a big change to the mindset of the average home shopper. It balances out all of the bubble stories and Calgary situation that may make someone negative on re. With another cut in March it should make for a good spring market in Van/Tor.

    1. mortgagejake says:

      THIS comment from wut should be framed.

      The point isn’t if you will get an immediate reaction from fence-sitters, its that you’ll see people more confident in thinking that rates remain lower, longer.

  5. JDF says:

    I would disagree.

    I believe there are many buyers that were waiting for prices to stabilize or decrease once the rate hikes started, originally slated for Q2/Q3, 2015. That’s not happening.

    Therefore, prices will continue to remain stable or increase as inventory is still low…however, I think there will be even more buyers. Buyers have already missed out on the appreciation of the last few years, they are not going to wait anymore as it looks like rates will not be increasing anytime soon.

    I think you will indeed get more calls from new buyers.

    On a separate but related note, who else has a variable rate mortgage and not getting the benefit of the rate cut ? Why take on the risk of a variable rate mortgage when its clear the banks will arbitrarily decide to adjust their bank rate. I am sure if it were a rate hike, the corresponding increase would have happened instanteously.

    1. Boris says:

      Lots of speculation that the finance department and BoC called the heads of the banks and told them not to decrease prime rates. Still concern over massive household debt levels. Banks say “hell ya” as their net interest margins expand. Of course the alternative lenders can do what they want. But really most Canadians are brainwashed via propaganda to go right to ‘their’ big 5/6 bank for their mortgages.

  6. Kyle says:

    I don’t see it having a big impact on the behaviour of new buyers, but i’m guessing we could see existing mortgage holders, lock in the VRMs, or even break their fixed rate mortgages to get into lower fixed rate mortgages. Overall i think this will reduce the level of risk associated with mortgage debt over the next 5 years, much to the chagrin of those who keep hoping and praying that homeowners are tapped out.

  7. Keith says:

    You are right again.
    Proof again that journalists certainly do not understand how the real estate market works.

  8. Tyler says:

    Agree the rate cut on its own will do little to affect the market, but isn’t the more important factor the psychological impact it will have? Rather than anticipating rates climbing later this year, it’s now more likely that rates will be cut again and stay low for a longer period of time than expected. Even a rate hike later this year or next would just bring it back to where it was last week.

    I think that it’s the change in the future outlook that is more likely to have an affect, as those working out their budget for the next few years now see a mortgage as less likely to become unaffordable for them if and when rates do rise.

    1. Tyler says:

      ^more like to have an *effect*

      1. I’m 34 years old, and I still have NO CLUE how affect/effect works…

        1. Joe Q. says:

          Generally, “to affect” is a verb, “effect” is a noun — but “to effect” can sometimes be used as a verb (basically a synonym for “to cause”, e.g. “to effect change”).

          “Affect” can be used as a noun in very limited cases, usually describing personality traits (e.g. “he has a flat affect” = he shows no emotion). In this case it has the emphasis on the first syllable (“AFFect”)

  9. Chroscklh says:

    This is the good point. And to further – unexpect rate cut can spook consumer “economy is this bad?! I better no spend.” And/or discuss of more cut in future – “I wait, BoC cut again. Aunt Betsy say knee paining her something fierce – BoC always cut rate after Auntie knee hurt.”

    While Chroscklh prefer soft land and for friends in Alberta not get hurt on home price, part of Chroscklh hope 25% decrease in Fort Mac house and 10-15% drop in Calgary house translate to decline for Canada as whole on average of 2-3% or whatever so headline across world read “Canada soft land, price decline 2-3%” -meanwhile Toronto no decline, Vancouver no decline. Back my country this happen – very effective. One quarter only 2 house sell whole country. Central bank take action – president push man head into wall say “you cut price half or I punch face repeat” He cut price, headline in Economist say “House Price Correct 25%”

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