As you may have seen in the news, the Bank of Canada lowered its intended target for the overnight rate by 50 basis points (BPs) to 1.25%, suggesting that COVID-19 (Coronavirus) poses a significant risk to Canadian and global business. I’ve received multiple requests to break this down in more detail, and how it can affect you and your home.

 

Why is this happening?

The Bank of Canada’s press release explains how the global issue COVID-19 is affecting business activity in countries all over the world. It has come as a massive disruption to supply chains and logistics processes, pulling down prices of commodities in global markets. In turn, the Canadian dollar has depreciated, and as the virus continues to shake the world's economies. As people see the Olympics at risk of cancellation, plane prices plummeting, and major news outlets discussing the risk of public spaces, consumer confidence will continue to depress. The Bank of Canada’s press release wraps up by saying that they are ready to adjust their monetary policy further if required to support economic growth and keep inflation on target.

The Bank of Canada is sending a strong message by moving a full 50 basis points. In the past, they have resisted this, due to concerns about contributing to an already burning Toronto and Vancouver housing market. But the change in direction comes from a real concern that the drop in Canada’s trade if sustained, will weigh on income growth, and other central banks are expected to follow in Canada's footsteps.

 

What does it mean?

Many leading thinkers are suggesting that the Bank of Canada is going to lower rates even more at their next policy meeting on April 15th, as well as coordinate with the other G7 central banks to determine how best to navigate these financial conditions. In the past, particularly in times of economic crisis, easing of interest rate is meant to help improve customer and business confidence. While this may not quell the virus, it will affect the housing market significantly. You can expect financial stimulus on all fronts going forward.

These COVID-19 decisions will have a net positive in housing demand going forward. While international home buyers may be reduced with a lack of travel, lower interest rates will undoubtedly add to an already high-demand spring home market. Despite lower than average home inventory in Toronto, February reports are showing that prices and amount of sales have increased rapidly compared to a year prior. February sales were up by more than 15% compared to the month previous.

Our team will be monitoring these changes closely and will keep you up to date on progress. If you have any questions about the interest rate, COVID-19s impact, or how you and your property can adapt, don't hesitate to contact me at my direct number to discuss further (647) 350-0977.