Good news for Home buyers and sellers. Today, the Bank of Canada decided to keep its key interest rate steady at 5 percent with the next announcement set for October 25. This decision comes in response to Canada's first significant bout of high inflation in decades.
Many mortgage owners have felt the effects of higher borrowing costs as the Bank of Canada moved to increase interest rates 10 times since March 2022, bringing the policy rate to five per cent.
Inflation in Canada is typically measured using the Consumer Price Index (CPI), and the central bank aims to keep it around 2 percent. However, CPI inflation surged to a four-decade high of 8.1 percent in June 2022 but has since decreased to 2.8 percent in June 2023. The reasons behind this inflation have evolved, starting with increased demand for goods fueled by government support and low interest rates in 2021, coupled with supply disruptions due to COVID-19 and rising global food and energy prices due to geopolitical events like Russia's invasion of Ukraine.
More recently, inflation has been driven by rising service prices, influenced by a tight labor market and rapid wage growth. To combat inflation, the Bank of Canada uses interest rates.
The Bank of Canada decided to leave its benchmark interest rate at 5 percent on September 6, a level not seen since April 2001. The bank anticipates inflation to remain around 3 percent for the next year before gradually declining to the 2 percent target by the middle of 2025.
For everyday Canadians, this means that things have become more stable for now with the hope of a decreasing inflation rate heading into 2024.
It's important to note that interest rate changes typically have a delayed impact, often taking 18 to 24 months to fully affect economic growth and inflation. Overall economic activity has started to slow down, though not as much as some economists had predicted last year.
As we swing into full Fall market this week we are seeing continued inventory growth. Although inventory levels have been on the rise, overall inventory levels still remain low. The Fall market brings opportunities for Sellers, who can still benefit from lower inventory levels than a traditionalized market and buyers will continue to see an increase in options and a more traditionalized negotiating forum for purchasing. There are opportunities for both sellers and buyers, but the experience of a seasoned realtor is key. Making sure you don’t leave money on the table or that you’re securing the best value!