When interest rates drop, as they currently are in Canada, the real estate market typically experiences a surge in activity. This phenomenon is driven by several key factors. Here are a few things to know, and to educate your clients on, within the upcoming weeks.
Things to anticipate that impact the real estate market when rates drop:
- Increased Buyer Demand:
Lower interest rates mean cheaper borrowing costs. Homebuyers, both first-time buyers and those looking to upgrade, find it more affordable to take out mortgages. This leads to an increase in demand for homes. - Higher Home Prices:
With more buyers in the market, competition for available properties heats up. This often results in higher home prices as buyers are willing to pay more to secure their desired homes. - Refinancing Boom:
Existing homeowners take advantage of lower rates to refinance their mortgages. Refinancing can lower monthly payments and free up household income for other expenses or investments. - Boost in Housing Construction:
Builders respond to increased demand by ramping up construction of new homes. This helps to address inventory shortages, although there can be a lag between the rate drop and the completion of new homes. - Economic Stimulus:
Lower interest rates are generally part of broader economic stimulus measures. As people buy homes, they also spend on related services and goods, such as moving companies, furniture, and home improvements, boosting the overall economy. - Improved Affordability:
Lower mortgage rates can improve housing affordability, making it easier for buyers to qualify for loans and purchase homes that may have been out of reach at higher rates.
However, the reaction of the real estate market to falling interest rates can vary based on other economic conditions, such as employment rates, consumer confidence, and the overall health of the economy. While lower rates generally spur market activity, other factors can either amplify or mitigate this effect. Knowing your local market is key when it comes to communicating the potential impact of rates in your service area.
