What Homeowners Need to Know About Interest Rates and Inflation in Ontario and Canada
Interest rates and inflation are big topics that can feel overwhelming, but they play a huge role in your finances, especially if you own a home or are thinking about buying one. Here’s a simple breakdown of what’s happening with these economic factors in Ontario and Canada right now.
Interest Rates: What’s Changing?
Interest rates have been on a bit of a rollercoaster lately. Over the past few years, rates went up to help control rising prices, but now they’re starting to come down. This is good news if you’re thinking about getting a mortgage or refinancing your current one.
Recent Changes: In June, July, and September 2024, interest rates dropped by 0.75%. More cuts are expected in October, and December, each time by 0.25%.
What It Means for You: By the end of 2024, interest rates should settle around 3.75%, with more reductions possible in 2025. Lower rates could make borrowing cheaper, which is great if you’re buying a home or have a variable-rate mortgage.
Additionally, the 5-year bond yield has plunged below the key 3% threshold. If this trend holds, it could lead to another 0.5% drop in 5-year fixed mortgage rates. This could mean insurable mortgage deals dipping well into the 3% range, with a chance that uninsured deals might even break below the 4% barrier, making homeownership more accessible.
Inflation: Cooling Down
Inflation refers to how much prices for goods and services increase over time. Recently, inflation has been calming down after being high for a while.
Current Situation: Inflation has come down from a peak of 8.1% in June 2022 to 2.5% in July 2024, marking the lowest inflation rate since March 2021. This significant improvement reflects the efforts to stabilize the economy.
Impact on Your Budget: Lower inflation means that the overall cost of living isn’t rising as fast, which is a relief for your household budget. However, mortgage costs have been a significant part of inflation, so even with lower prices, the cost of owning a home is still something to watch closely.
How This Affects the Housing Market
The combination of falling interest rates and cooling inflation has significant implications for the housing market, especially in Ontario.
Housing Prices: After a tough period, house prices in the Greater Toronto Area have started to stabilize. From April to July 2024, prices saw a small increase of 0.1%.
Home Sales: July 2024 wasn’t great for home sales, but with interest rates coming down, experts are optimistic that we’ll see more activity in the market soon.
If you’ve been on the fence about buying or selling, these changes could create a better environment for making a move.
Why It Matters to You
Understanding how interest rates and inflation affect the economy can help you make smarter decisions about your home and finances.
For Current Homeowners: Lower interest rates could mean it’s a good time to refinance your mortgage and lower your monthly payments.
For Prospective Buyers: With rates decreasing, it might be easier to afford a mortgage, making it a great time to start looking for a home.
Staying informed about these trends can help you navigate the real estate market more confidently, whether you’re looking to buy, sell, or just make the most of your current situation.
