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Central bank’s rate remains the same: mortgage interest rates actually drop
May 27, 2005

The Bank of Canada has announced it won’t be increasing its interest rate, keeping it at 2.5 per cent until at least July 14 when it issues its next update. 

The bank said inflation is still under two per cent and economic prospects for the nation remain unchanged. 

“Growth this year and next is still expected to come primarily from domestic demand,” said the bank.

While the central bank’s rate remained the same, charter banks had already begun announcing lower mortgage interest rates. For example, the Royal Bank dropped its one-year closed mortgage by 0.10 percentage points to 4.85, its three-year closed rate fell by the same amount to 5.5 per cent, and its five-year closed rate decreased by 0.20 percentage points to 5.85 per cent.

Although mortgage funds are purchased on the open bond market, the amount paid by financial institutions is influenced by the Bank of Canada rate.

The fact the central bank’s rate remained unchanged is good news for home buyers in this hyper marketplace.

Despite steadily increasing home prices, low mortgage rates mean affordability is not adversely affected.

“Low interest rates are continuing to fuel housing activity in all regions,” said Gregory Klump, the Canadian Real Estate Association’s chief economist. “First quarter statistics show that home buyers took advantage of lower mortgage interest rates in many markets across the country.”

The MLS® average price in Winnipeg has jumped to $128,123 this year which is 8.1 per cent higher than the same period  last year, according to CREA

“With sales in higher price ranges expected to remain strong and activity in lower price ranges being crimped by a lack of inventory, the MLS® average home price will continue to see strong gains — even while the market continues to become increasingly balanced this year.

Mortgage rates actually did experience a slight increase in April and as a result, buyers jumped into the market to take advantage of pre-approved loans that pre-dated rate increases.

Winnipeg Real Estate Board president Ruthe Penner said the rate increase was reflected in a surge in the April housing market.

“It can certainly be said April set a new benchmark for the Winnipeg real estate market,” she commented.

April MLS® dollar volume jumped 25 per cent to $156.1 per cent when compared to the same month last year. Meanwhile, units sales were up only two per cent. The higher dollar volume reflected an increase in the average MLS® selling price.

The present mortgage interest rate drop means there will not be the same urgency to buy and more inventory should become available, although that shouldn’t diminish the strength of the market.