Just a few months ago, many authoritative sources in the mortgage and financial industries were predicting that mortgage rates would slowly start to rise in 2015 and that real estate demand in Ottawa would be tepid at best. Then oil prices started to fall, and fall… and fall. This seismic shock has shifted the economic landscape across oil-dependant Canada and sent everyone scrambling, including the federal government, which even delayed its budget past the magic national capital date of March 31st.
Further economic triage efforts are underway at The Bank of Canada, which, last month, dropped its key lending rate a quarter point lower than it’s basement rate of 1%, where it had been holding steady for several years. With mortgage lenders on the brink of a rate war… suddenly the Ottawa housing market is very attractive for those looking to get a new mortgage or refinance their current mortgage.
Low Oil Prices Pushing Mortgage Rates Down
Oil prices started plummeting in November 2014 as global demand dropped due to weak economic growth, and increased supply resulting from surging US and Canadian oil production. Saudi Arabia, the worlds largest oil producer, has refused to back off on supply levels, as they rest on deep cash reserves and produce oil at far cheaper rates than most suppliers around the globe. The Saudis might also be predicting a long-term diminishing of demand as alternative energies come online.
Oil prices are now hovering at less than $50 dollars a barrel, less than half of where they’ve been for the past 4 years:
From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 a barrel. But since June prices have more than halved. Brent crude oil has now dipped below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel. BBC News
In oil-heavy Alberta, jobs are being shed by tens of thousands and home values are on the brink of a steep slide:
Calgary’s housing market took a sharp downturn last month, with sales plummeting 35 per cent compared with the same time last year, while new listings surged 40 per cent. Globe And Mail
The sudden oil shock caused the Bank of Canada to react by reducing its key overnight lending rate last month to 0.75%. Some analysts are predicting that the central bank might lower its key rate even further in the coming months to stave off economic disaster in Canada, which has been increasingly reliant on oil exports:
At the time, governor Stephen Poloz said the cut was needed as insurance for the “unambiguously negative” effects of plummeting crude prices on the oil-exporting country’s economy. Financial Post
Are We Entering a Mortgage Rate War?
It wasn’t long before the big banks started redusing their mortgage rates to align with the decision by the bank of Canada. RBC led the way by dropping its five year fixed rate, for qualified borrowers, to 2.84%. Other banks are starting to following suit, leading industry analytics to speculate that:
Canada’s major banks are heading into a renewed mortgage price war in the wake of the Bank of Canada’s surprise decision to cut interest rates. Globe And Mail
Only a few months ago, the general consensus among industry experts was that rates would likely rise in 2015, to cool an overheating housing market:
Many analysts had predicted interest rates would rise this year, so the central bank’s unexpected decision to slash rates is widely expected to reignite the country’s cooling housing market. “Given the negative impact of lower oil prices on the Canadian economy, interest rates are likely to remain low for some time, supporting home sales, especially in Vancouver and Toronto where affordability is an issue,” said BMO senior economist Sal Guatieri. Globe And Mail
Falling Mortgage Rates Are Boosting the Ottawa Housing Market
Falling Mortgage Rates have given the Ottawa housing market an enthusiastic boost:
The January deep freeze had no adverse effect on home sales in the capital, according to the Ottawa Real Estate Board… “The possibility of interest rates approaching record lows will provide even more opportunity for homebuyers,” said OREB president David Oikle. Ottawa Business Journal
With oil prices so low, Ottawa consumers are also benefiting from significant savings at fuel pumps across the city. These savings translate into additional disposable income and a general ‘feel-good’ effect every time we fill up at the pumps, making mortgages even more attractive, especially at these incredibly low rates.
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If you’re looking for an easy way to explore your mortgage options, why not fill out our online mortgage application? You get all the benefits of an experienced Ottawa Mortgage Broker, and the convenience of applying online and at your own leisure. We’d love to hear from you at Hatch and help you navigate the shifting mortgage landscape.
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