Interest Rates Slowly Starting to Drop
Third straight rate drop signifies a brighter future for buyers & sellers of income properties
The third interest rate drop over the past few months has just occurred, and the Bank of Canada is promising further rate reductions in the new year. In its third consecutive cut since June, the Bank lowered its key interest rate to 4.25 per cent last week, citing the continued easing of inflation.?“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate,” stated Bank of Canada governor Tiff Macklem.
While the cuts have been small (25 basis points at a time), it has potential buyers starting to buzz about getting back into the Toronto real estate market. Some still insist that larger rate cuts are needed to really stimulate the market and jump-start the overall economy. This past summer was noticeably slower on sales across the board.
This is particularly relevant to buyers of residential income properties since the monthly costs are so important to the profitability and success of an income property purchase. Whilst cap rates have always been a large determinant of bottom line, break-even is becoming more and more relevant. Lower rates mean less out of pocket each month and a better overall ROI. Sellers are hoping that the lower interest rates bring more buyers to the table and buyers are hoping to cash in on better numbers. We saw how well Sellers did when the interest rates were at their lowest points in history. While no one expects us to get back into the 1% vicinity any time soon, many experts agree that lower rates will help stimulate the market.
