Let’s be frank – given the fact that rates jumped about 6% in 10 increases, how much will a ¼ or 1/2% rate cut do for Real Estate Buyers and Sellers? In a nutshell…. a lot!

If we look at the average home in Oshawa, Whitby and Clarington and given the average selling prices, we will notice a drop in monthly payments that look like this. (Based on a 20% downpayment and a 5-year fixed term.)

                       Average home price   Monthly payment           Decrease in payment/mth.

Oshawa       $780,000                      $3,540                                   $89/month

Clarington  $846,000                      $3,840                                   $196/month

Whitby          $1,028,000                     $4,666                                 $117/month

It is apparent that when the Bank of Canada drops the rate by 25 basis points the effect is not dramatic. Even if the rate is reduced by ½% this week the payment in Oshawa will only drop by $176/month.

At a glance, it seems that a reduction in monthly payments is not enough to cause people to move, however, what these changes do is something more about instilling confidence back into the economy.

Here is an example of how changes can affect the Real Estate market quickly by changing the feeling of confidence. In February 2022 we had our first rate increase in many years. Prior to the mortgage rates increasing, there were bidding wars on almost every home and the values were rising monthly. From March – April 2022 the rates increased by ½% to a lending rate of 1%. Even though the rate increase was a small one, Buyers became uncertain about the market and stopped buying. Over this one month the number of sales declined by 18% causing values in Whitby to drop from $1,400,000 to $1,294,000. Just like that – a ½% rate hike happens, resulting in uncertainty with Buyers sitting on the fence.

Currently the reverse is happening. We had a 1/4% drop in rates last month and it looks like the rates will be coming down by ¼ – ½% this week. This will cause the Buyers to be more comfortable entering the market with a confident feeling that the trending is rates lowering over the next few months.

When my clients are chatting with mortgage professionals, most are recommending taking short-term fixed rate mortgages. The feeling is that the rates will drop between 3.5% and 4% over the next year. This would cause the above mortgage for a home in Whitby to drop by $560/month. (Rate drop from 5% to 3.5%.)

Not only will this help homeowners renewing and Buyers buying, it will also help lessen the burden of people with lines of credit, loans and credit cards with floating rates.

2024 is looking brighter month by month.

If you are interested in obtaining the best possible mortgage rate, or in buying or selling a home I can be reached at lindsay@buyselllove.ca or 905-743-5555

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