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Keeping you INFORMED:

Bank of Canada shocks markets with cut in key interest rate

The Bank of Canada shocked markets Wednesday by cutting its key overnight lending rate by a quarter of a percentage point, citing the economic threat posed by plunging oil prices.

“The drop in oil prices is unambiguously negative for the Canadian economy,” Bank of Canada governor Stephen Poloz said in a morning news conference. “Canada’s income from oil exports will be reduced, and investment and employment in the energy sector are already being cut.”

The overnight rate, which moves down to 0.75 per cent, had been at one per cent since September 2010. The cut would result in lower interest rates for variable rate mortgages, lines of credit and other loans that float with prime rates, but only if banks lower their prime rates. As of Thursday morning, none of the banks had lowered their prime rates. 

Virtually no economists had been predicting a rate cut.

“It is a significant move,” TD Bank economist Derek Burleton told CBC News. “It does show the Bank of Canada is worried about the big drop in the price of oil … and what kind of uncertainty that poses in the next few quarters.  I don’t think they are panicking but I do think they’re concerned about some of the uncertainty the recent slump in the price of oil does create for the economy.”

Oil prices have plunged to less than $50 US a barrel from more than $105 US in June last year.

The large decline in oil prices will weigh significantly on the Canadian economy,” the Bank of Canada said in its quarterly monetary policy report.

“Given the speed and magnitude of the oil-price decline, there is substantial uncertainty around the likely level for oil prices and their impact on the economic outlook for Canada.”

In the wake of the rate cut, the loonie plunged more than 1.5 cents to close at 81.07 cents US. It hasn’t closed that low since April 2009.

The benchmark index of the Toronto Stock Exchange jumped 252 points, or 1.8 per cent, to 14,560.

Lowered outlook

The central bank scaled back its forecast for the country’s economic growth this year. It now sees 2015 growth of 2.1 per cent, down from 2.4 per cent.

“The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar and the Bank [of Canada’s] monetary policy response,” it said.​

The central bank says real GDP growth will be just 1.5 per cent in the first half of this year and will pick up in the second half. For 2015 as a whole, it sees economic growth of 2.1 per cent, rising to 2.4 per cent in 2016.

The bank bases its revised growth forecast on the assumption that oil will average $60 US a barrel over the next two years.

The central bank said the oil price plunge increases downside risks to both inflation and financial stability. It said Wednesday’s action was designed “to provide insurance against these risks.”

David Madani of Capital Economics says the rate cut shows that the Bank of Canada “is far more worried than before about a severe housing market correction, which in our view is understandable given the recent news that home sales in Alberta have already collapsed.”

Several analysts say further rate cuts cannot be ruled out.

“Today’s [Wednesday’s] BoC rate cut smacks of being a one-time ‘insurance’ move but in his presser, Governor Poloz indicated that if the world changes again [adversely for Canada] the bank could take out more insurance,” noted BMO deputy chief economist Michael Gregory.

 

Property Management and Rentals

We are also involved in residential property management in Ottawa. We deal directly with clients who want to list their property to rent, and also who need a property manager.

For more information regarding this, contact Larry Balkwill or Conor Mangan at 613-237-2567, info@ottawahomesandcondos.com or by clicking here.

Market UPDATE:

09/01/2015

Happy 2015! The year in real estate ends strongly with an unusually active December.

There were 144 condos sold in December 2014 as compared to 145 condos in 2013. A decrease of 0.7% in number of condo units sold. Typical of the current market, with lots of inventory for the buyer to shop around.

The average sale price of a condo was $270,236 in December 2014, as compared to an average sale price of $245,349 in 2013. An increase of 10.1% on the average sale price in this real estate sector. A huge finish from the condo market this year, in Ottawa.

An interesting statistical quote (before going into the ‘houses’ breakdown) from the board’s president, regarding year end sales:

“The price range with the most concentrated amount of sales for 2014 was the $300,000 to $349,999 range, with 18.8 per cent of the year’s sales, followed by the $350,000 to $399,000 range, with 12.5 per cent of the year’s sales”

There were 496 residential houses sold in December 2014 as compared to 464 in December 2013. An increase of 6.9% in the number of houses sold in the residential real estate market in Ottawa. An unexpected jump in this market sector, which has been strong all year.

The average sale price for December 2014 was $367,286 compared to an average sale price of $369,755 in 2013. A 0.7% decrease in market price. An exact opposite from last months figures, but typical of this time of the year. A more competitive Ottawa market is the probable cause here.

152 properties were rented by real estate board members in December 2014, out of over 700 available rentals in Ottawa. Year end rental properties gross over 2,500.

-Conor

Ottawa is one of the most stable real estate markets in Canada. Prices remain steady in Condos, residential units and multi-units, although volume is experiencing slight declines, particularly in condo sales.

Re-visit Ottawa Homes and Condos for all the latest updates! We have some great listings on our featured listings page; New real estate listings on the market!