The Bank of Canada has lowered its interest rate again by 25 basis points (or 0.25 percent). This means the overnight rate for Canada is hovering at a mere 0.5%! What exactly do low interest rates mean to you as a seller? Well let’s take a look at how interest rates work.
Low Rates = More Buyers & Higher Home Prices
When interest rates are low, it stimulates growth. Why? Very simply, if you are offered a loan on a car and one bank offers you an interest rate of 5% and the other bank offers you an interest rate of 4%…which loan are you more likely to go with? Of course the one that charges you less interest. And don’t you think that word will spread that there is a bank out there offering loans on cars for only 4%? It sure will! You can bet that bank will get business lining down the block to hold on to that low interest rate. This is how growth is created when an economy is trending downwards. Low rates and lower borrowing costs increase consumer spending.
Well the same is true for mortgages. With the Bank of Canada cutting its overnight rate, TD Bank has decided to pass on 10 basis points to its consumers (or the equivalent of 0.10% off your mortgage). It is safe to assume that a flood of buyers will be trying to enter the market place in order to secure such low rates. Generally when one of the Big Five lower their interest rates, the rest will follow suit in order to try and claim more business and remain competitive.
High Rates = Less Buyers & Lower Home Prices
What about high interest rates? When interest rates increase, buyer spending tends to fizzle out as less people are able to afford the higher cost to borrow money. But higher interest rates means steeper borrowing costs. You can expect home prices begin to appreciate less rapidly or perhaps even fall in some markets, where buyers cannot take on mortgages at such a high debt to service. The only other option for the seller would be to lower his price to make the home more affordable to not sell all together.
So as a seller, why would you really care that buyers are saving money? A flood of buyers in the market to buy a home and a lack of inventory available is the recipe for heightened home prices and bidding wars – a seller’s dream!
With prices going up and buyers eager to purchase, why haven’t you listed your home for sale? These low interest rates are only adding more fuel to our already heated up Toronto real estate market. Take advantage!