The Bank of Canada is holding the interest rate

The Bank of Canada (BoC) announced today that it will keep its key interest rate unchanged at 5 per cent, as widely expected by analysts and economists. The central bank cited the ongoing uncertainty caused by the COVID-19 pandemic and the need to monitor the impact of its previous rate hikes on the economy and inflation.

The BoC has raised its policy rate seven times this year, from 1 per cent in April to 5 per cent in September, in an effort to curb the rising inflationary pressures that have been fueled by supply chain disruptions, labour shortages, and strong consumer demand. The bank’s latest monetary policy report, released along with the rate decision, showed that inflation reached 4.4 per cent in September, well above the bank’s target range of 1 to 3 per cent.

The bank said that it expects inflation to remain elevated in the near term, but to gradually decline towards 2 per cent by the second half of 2024, as the transitory factors that have been driving it up fade away. The bank also said that it will continue to assess the balance of risks between inflation and economic growth, and that it will adjust its policy rate as appropriate to achieve its inflation objective over the medium term.

What does this mean for the real estate market in British Columbia?

The BoC’s decision to hold the interest rate steady is good news for home buyers and sellers in BC, as it means that borrowing costs will remain relatively low for now. However, this does not mean that the housing market will cool down anytime soon, as there are still many factors that are supporting the high demand and prices for residential properties.

According to the Canadian Real Estate Association (CREA), the national average home price rose by 21.4 per cent year-over-year in September, reaching a record high of $716,000. The number of home sales also increased by 6.9 per cent month-over-month, after two consecutive months of declines. CREA attributed the strong market activity to the low inventory levels, the improving economic conditions, and the ongoing desire for more living space among buyers.

However, BC’s housing market is seeing a slowdown in sales even as home prices once again rise. With an average home price of $966,530 for the month of September 2023, BC home prices are now up 4% year-over-year after increasing 1% compared to the previous month. The slowdown in sales is partly due to the tighter mortgage rules that came into effect in June 2023, which reduced the borrowing capacity of some buyers and increased the qualifying rate for uninsured mortgages from 4.79% to 5.25%. This made it harder for some buyers to enter or move up in the market, especially in high-priced areas like Vancouver and Victoria.

Another factor that may affect the BC housing market is the provincial government’s plan to introduce a new speculation and vacancy tax (SVT) on residential properties that are not occupied by owners or long-term tenants. The SVT is expected to be implemented in January 2024 and will apply to properties in Metro Vancouver, Fraser Valley, Capital Regional District (excluding Gulf Islands and Juan de Fuca), Kelowna-West Kelowna, Nanaimo-Lantzville (excluding Protection Island), Abbotsford, Chilliwack and Mission. The tax rate will vary depending on whether the owner is a Canadian citizen or permanent resident, a satellite family (a family where more than 50% of their income is from outside Canada), or a foreigner or a corporation. The tax rate will range from 0.5% to 2% of the property’s assessed value.

The SVT is intended to discourage speculation and encourage owners to rent out their vacant properties, thereby increasing the supply of rental housing and improving affordability for renters. However, some critics argue that the tax will have unintended consequences such as reducing investment and development in BC’s housing market, hurting homeowners who have legitimate reasons for leaving their properties vacant (such as seniors who travel or work abroad), and creating administrative burdens and compliance costs for owners and tenants.

Therefore, if you are planning to buy or sell a home in BC in the near future, you should keep an eye on the BoC’s announcements and actions, as well as on the provincial and local market conditions and regulations. You should also consult with a professional real estate agent who can help you navigate the complex and dynamic market environment and find the best deal for your needs and budget.