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Interest rate cut prompts surge in buyer activity

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It’s rare to see an instantaneous reaction within Canada’s real estate marketplace but in just one day traffic on the Zolo site more than doubled in what appears to be a response to the recent interest rate cut.

The Bank of Canada cut its trend-setting overnight interest rate by half a percentage point on Wednesday, March 4 — dropping it to 1.25% down from 1.75% — in an effort to soften the economic impact of the COVID-19 outbreak.

Almost immediately, traffic on the Zolo site spiked. When comparing traffic from week to week, there was a 63% increase in new and returning visitors. Year-over-year traffic (or the first Wednesday after the March BoC announcement) shows an almost 207% increase in site traffic. There are roughly five million new and returning visitors, which result in over nine million site visits, each month, on average, to the Zolo brand.

At the same time, activity on Google Trends confirms a spike in search activity for interest rates.

Popular search terms include ‘houses for sale + city’

Some of the searches with the largest increase in search volume included:

  • houses for sale in North Battleford (+250%)
  • houses for sale in Barrie (+110%)
  • houses for sale in Vaudreuil (+80%)
  • houses for sale Innisfil (+80%)
  • houses for sale near me (+70%)
  • prime interest rate Canada (+350%)
  • interest rate differential calculator (+120%)

To put this in perspective, the BoC interest rate announcement search term increased in volume by 50%, during the same time frame.

Other popular searches included searching for houses in or near: Cornwall, Chatham-Kent, Saskatoon, Sarnia, Kawartha Lakes, Windsor, Thunder Bay, Regina, St. John’s, Saint John, Sudbury, Saint Catharines, Cambridge, Brantford, Niagara Falls, Hamilton, London, Winnipeg, Abbotsford, Peterborough, Burlington, Brampton, Guelph, Kamloops, Oshawa, Milton, Nanaimo, Langley and, of course, Toronto and Vancouver.

What increased search activity could indicate

This surge in online users could indicate the start of a strong spring selling season, this year.

This will be welcome news for sellers, particularly in the Greater Toronto Area where the market is already heating up, and in Greater Vancouver, where activity and sales have dropped in most places, sometimes quite dramatically.

Buyers, particularly first-time homebuyers, could become more motivated after this rate cut and given the upcoming changes to the mortgage stress test.

On April 6, 2020, federal government amendments to the mortgage stress test will be implemented. It means that buyers and those renewing their mortgages will no longer have to qualify for the mortgage loan based on the posted 5-year fixed rate — which currently sits at 5.19% (almost 3% higher than the lowest available insured mortgage rate currently available in the marketplace). Instead, lenders will use the weekly median 5-year fixed mortgage rate plus 2%. Using today’s rates that would mean a 30 basis point drop in the qualifying rate to 4.89%.

Now, with the new rate cut from the BoC, lenders should begin to lower variable rate mortgage rates, as well.

The bottom line: It will be easier for buyers and mortgage renewers to qualify for a mortgage and end up costing them less.

How much less? The actual savings depends on the length of amortization, actual interest rate, mortgage terms and the size of the down payment, but buyers should anticipate average savings between $80 to $110 per month (for a $500,000 house purchase, assuming 5% down).

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Romana King

Romana King is an award-winning personal finance writer, real estate expert and the current Director of Content at Zolo Homebase. Romana has contributed to business and lifestyle publications including, Toronto Sun, Maclean’s, MoneySense, Globe & Mail Custom Content Team, and The Toronto Star. Among her achievements, Romana won silver for her annual Where to Buy Now real estate package in the 2019 Canadian Online Publishing Awards. In 2015, she won a SABEW Business Journalism award. When she was editor of CI Top Broker, Romana helped guide her team to obtain its first KRW Business Journalism nomination, and in 2011, she was part of a small team that helped MoneySense win Magazine of the Year at the 34th annual National Magazine Awards. Her north star is to consistently provide actionable, valuable and accurate information that helps elevate the financial literacy of everyone.