‘Stability is never a bad thing’: Mortgage experts welcome hold on interest rates

A for sale sign is pictured outside a home. (THE CANADIAN PRESS/Jonathan Hayward)

Mortgage specialists are welcoming a hold on interest rates from the Bank of Canada particularly as a trade war continues to brew between Canada and the United States.

The Bank of Canada maintained its key interest rate at 2.75 per cent Wednesday, for the third consecutive decision citing a lack of clarity around tariffs.

“Stability is never a bad thing for business confidence, for stock markets or for the housing industry,” Phil Soper, president and CEO of Royal LePage told BNNBloomberg.ca in a Wednesday interview. “I believe more people will be getting comfortable with the current environment and potentially getting off the fence if their family does need to change or upgrade their housing situation.”

Economists expected the central bank to hold off from cutting interest rates this month suggesting Canadians continue to face underlying price pressures in the economy.

“The fundamentals that drive the housing industry are actually quite strong,” said Soper. “Employment is steady. It even improved a little bit last month. Inflation is under control. Savings are high, even business confidence inched up a little bit from those, early tariff friction weeks lows. It’s an issue of uncertainty that’s keeping people out of the housing market, not the structural nature of affordability or employment or the cost of borrowing.”

Impact on fixed and variable mortgages

The central bank doesn’t set mortgage rates, but it does have an influence. Changes in the policy interest rate would lead to similar changes in short-term interest rates, including the prime rate, which is used by the banks as a basis for pricing variable-rate mortgages. With the central bank holding the interest rate, borrowing rates on many financial products, such as loans and mortgages, are unchanged, according to TD. When the central bank does cut its lending rate, it can become cheaper to borrow money conversely, when the rate goes up, it can become more expensive.

As the central bank holds its lending rate steady, Canadians with both variable rate mortgages and fixed rate mortgages, can expect their payments to remain status quo.

“We may see 10 to 20 basis points improvement in fixed rates, the very popular five-year fixed rate mortgage by the end of the year, but not particularly material on variable rates, which are tied directly to the bank rate,” said Soper. “I believe we’ll see, call it 50 basis points improvement, half a percentage point by year end. But again, that is predicated on some certainty with where we’re going in the trade relationship with America. If things continued to be unresolved, I believe the bank will continue to stay put.”

Penelope Graham, mortgage expert for Ratehub.ca, expects to see pressure added to fixed rate mortgages. She advises prospective and seasoned homeowners to take advantage of low rates by rate hold or pre-approval regardless of the type of mortgage.

“Whether or not you are coming up for renewal or you’re shopping for your first mortgage rate, it’s really important to be proactive and to do what you can now to guarantee access to today’s interest rate environment,” Graham told BNNBloomberg.ca in a Wednesday interview. “Today’s rate hold means that variable mortgage rates aren’t going to change. They’re going to stay stagnant until the foreseeable future, but we are seeing upward pressure building under fixed mortgage rates, and that’s because bond yields have been quite elevated in recent months.”

Graham said there has been quite a demand for buyers in the housing market but said if fresh tariff threats shake consumers, governments and policy makers, buying demand could freeze up again.

“If things continue the way that they have been in the past couple of months, we’ll likely continue to see demand returning to the market,” said Graham. “We know that there’s a lot of pent-up demand coming off the end of 2024. It was expected that this was going to be quite a hot year for real estate. We knew that a lot of buyers had been kind of waiting out the tail end, because in 2024 what was preventing them from buying was high interest rates.”

Slow recovery for Real Estate Investment Trusts (REITs)

With interest rates steady for a third consecutive month, Soper expects investment in real estate to recover, particularly for shareholders in real estate investment trusts (REITS).

“Real estate investors were hurt by the post pandemic rise in inflation and accompanying rise in interest rates, combat inflation,” said Soper. “With interest rates back down to normal levels and inflation under control, we’re seeing a slow recovery in the investment marketplace. I would expect that it would continue slow and steady improvement, just as we’re seeing in the housing market overall.”

REITs pool funds from individual investors and use those funds to build a portfolio of real estate investments, according to TD. When you invest in a REIT, you’re buying a share of that portfolio. REITs let you invest in real estate without having to buy, manage or finance real estate on your own, while providing a steady income steam.