The good news for newcomers and international students is that the Bank of Canada’s interest rates are falling. Experts predict they will continue to fall throughout 2024. The cuts will lift some of the financial pressures affecting all Canadians – including newcomers – from increasing mortgage costs, borrowing costs, and the rising cost of many consumer items.
On July 24, the Bank of Canada cut its benchmark interest rate by 0.25 percent to 4.5 percent. The second 0.25 percent cut followed a similar one in June. Before June 5, the rate stood at 5 percent, down from a high of 8.1 percent in June 2022.
Drop in Inflation Drives Interest Rate Cuts
The most recent Bank of Canada interest rate cut came as inflation in Canada fell from 2.9 percent to 2.7. The Bank’s target rate for inflation is 2 percent.
Meanwhile, unemployment in Canada increased to 6.4 percent in June, up from 6.2 percent in May.
The interest rate cuts directly affect homeowners, businesses, consumers, and borrowers.
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So, what can newcomers who have already arrived in Canada or arriving soon expect going forward?
Bank of Canada Governor Tiff Macklem said it is “reasonable to expect” more cuts in 2024. The Bank is “increasingly confident that the ingredients to bring inflation back to target are in place.”
Interest Rate Cuts Will Boost the Economy
Macklem said that housing costs (including rent prices) remain a problem and expect a gradual fall in inflation.
However, the Bank forecasts that the rate cuts will boost Canada’s economy and genuine estate investment and help the country avoid a recession.
The full impact of the cuts on the economy won’t be felt for 18 and 24 months, Macklem cautioned.
While many economists say the cuts will drive more consumer spending, it’s unknown when Canadians and newcomers will start spending.
Macklem said that housing costs (including rent prices) remain a problem and that he expects a gradual fall in inflation.
However, the Bank forecasts that the rate cuts will boost Canada’s economy and genuine estate investment and help the country avoid a recession.
While many economists say the cuts will drive more consumer spending, it’s unknown when Canadians and newcomers will start spending.
Larger Interest Rate Cuts Are Needed
“I take a lot of comfort from that. And I think Canadians need to just take a lot of comfort from that too.”
As for the impact of the Bank of Canada interest rate cuts on housing, Perrault said that the rate cut (an indication of more to come) “should be a great comfort to people with mortgages and people in the housing market.”
You should expect those interest rates to come down as you think about your financial plan, as you think about holidays, as you think about renewing your mortgage or buying a car.
Jean-François Perrault, Scotiabank
“The challenge is that the housing market is going to be a little bit slower to respond” to the cuts.
However, some experts say that despite the recent cuts, interest rates are still too high for newcomers looking to buy a home.
“It’s not a surprise that the Bank of Canada lowered its rate, but I’m disappointed it wasn’t a 0.5 percentage-point drop,” said John Lusink, president of Right at Home Realty.
“That would have really stimulated the market. Will this recent rate cut have a dramatic effect on sales? No, I don’t think so. It’s still wait and see for a lot of people.”
“So we’re not expecting a dramatic turn on the housing market in the short run.”
Immigration Increases the Demand for Housing
For newcomers to Canada wanting to buy a home, the lower rates will reduce the cost of borrowing.
Immigration continues to increase the demand for rental housing and home buying.
An Ipsos Research survey showed that newcomers buy homes quicker than ever and focus more on homebuying than those born in Canada.
Factor the Impact of the Cuts on Your Financial Planning
Canada is on target to welcome 485,000 permanent residents in 2024 and will welcome 500,000 in 2025. Between 2021 and 2026, Canada will have welcomed 2.4 million additional permanent residents.
For Perrault, a key takeaway from the Bank of Canada interest rate cuts is that it is “very clear that interest rates are going to come down and that you should expect those interest rates to come down as you think about your financial plan, as you think about holidays, as you think about renewing your mortgage or buying a car.”
“I would encourage people to not be overly worried about the economy, not necessarily rebounding right away as rates come down because they’re expecting it to.”
“But it’s just a matter of time before things turn around,” said Perrault, “as those rate cuts kick in and people feel like they are in the right position to go out and try and buy a (home). We know it’s going to happen. It’s just a matter of when that’s going to happen.”
Action Plan for Newcomers
- Follow the next Bank of Canada interest rate cut (Sept.4) and see how it affects prices in Canada.
SOURCES: Bank of Canada, Globe and Mail, Scotiabank Perspectives, Toronto Star, Statistics Canada, Ipsos.
Steve Tustin is the Editor for Rentals for Newcomers and a contributing editor for Prepare for Canada and he is also the former managing editor of Storeys.com and a former senior editor at the Globe and Mail and the Toronto Star.
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