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3 Ways Low Mortgage Rates Impact The Value of Your Sudbury Home

David Kurt

What made you decide to get into real estate? I was one year into working a “real job”; the type you study hard and go to University for when I re...

What made you decide to get into real estate? I was one year into working a “real job”; the type you study hard and go to University for when I re...

Apr 7 6 minutes read

The COVID-19 pandemic has had an effect on everything in Sudbury...

From airlines to toilet paper stock at Walmart and Costco. However, there’s another effect you might want to keep an eye on if you’re a homeowner: Falling mortgage rates. In Canada the Bank of Canada (B.O.C.) sets the lending rate that banks lend each other (and correlates closely to the rate that you pay on your variable mortgage, and any lines of credit you have (including those tied to a property).  Currently the B.O.C. rate is 0.25% which basically means that money is being lent from bank to bank and from the government to the banks.  They do this to encourage the banks to pass the rate saving on to consumers (most of the time this happens not always) on their variable mortgages and lines of credit. 

What does this mean if you’re already a homeowner? The first answer is easy: If you’ve been thinking about refinancing, now’s a good time to lock in a low rate. But if you’re concerned about the value of your home (particularly if you’ve been looking to sell in the next year), the news is a little more complicated. Here’s how the latest low mortgage rates might impact home values:

ONE

The number brings out more buyers — typically.

Low mortgage rates motivate many potential homebuyers to take the leap into homeownership. When there are more buyers than there are homes, supply and demand apply and you can expect property values to increase. However, that’s the expected scenario when there are low rates without a worldwide pandemic. If COVID-19 keeps buyers at home and properties linger on the market, there may be sellers who become discouraged and pull their homes off the market, further reducing supply; and if the pandemic drags on for the long term; this may result in sellers becoming extra motivated to sell, and a motivated seller in a market without buyers who are willing to jump on properties will most likely result in price reductions. 

TWO

Low rates here means low rates elsewhere.

Interest rate changes don’t just affect mortgages, it also affects savings accounts, retirement funds and other investments. Lower rates of return elsewhere mean less capital that could go into purchasing real estate, a factor that puts “supply” ahead of “demand.” Ideally, though, lacklustre rates of return could motivate potential buyers to put their money into real estate instead, leading to a rise in home prices (and home values).

THREE

Buyers could be waiting for even more cuts.

While no one knows the long-term effects COVID-19 will have on the economy, many anticipate another rate drop to follow. Potential buyers might take a “wait and see” approach, which leads to homes languishing on the market, price cuts and possible trends in lower home values as a result if it’s a long-term issue.  There are a lot of experts that are saying instead of further rate cuts, we can benefit from additional stimulus packages similar to the ones the US government have implemented that result in more money in the economy encouraging people to spend and flowing money through the economy. 

Overall, the low mortgage rates generally mean good news for sellers, but the current pandemic does add an element of uncertainty that brings caveats. While national trends are an important factor to watch, your best indicator of where your local market is going is by keeping an eye on your neighbourhood — and getting in contact with a realtor who already is up on the area.  As mentioned numerous times, we are still working; although its not business as usual, we are encouraging virtual meetings and leveraging technology to be able to offer our services in a "stay-at-home" world. 

While we tried to cover the most common reasons why low mortgage rates can affect property value...

The other factors that could affect your home’s value might not have been mentioned. We know that every seller has different timelines and priorities. 

If you’re concerned about how your home’s value could be affected by low mortgage rates, we’re here to listen to your concerns and help walk you through the process.

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