Bank of Canada Raises Interest Rates Again!

The Bank of Canada has announced they will be raising interest rates from 0.5% to 1% and it has the experts buzzing! What does this mean for the real estate world? Will homebuyers still get the financing they need? Is the market going to level off?

Back in March 2020, the bank slashed rates to barely above zero in an effort to support our economy through the uncertainty of Covid-19. Now that inflation is back up and at a high level, an increase in interest rates is needed to remove stimulus from the economy. Economists are expecting more interest hikes on the horizon to possibly 2% or even higher. 

So what does this mean for real estate? It is well proven that as interest rates go up, real estate demand and prices begin to trend down. In recent years, home prices have soared and many new buyers were left with little to no hope of entering into the market. Now with this rate hike, a buyer who was previously approved for a $750,000 home will likely only qualify for closer to $650,000. In the short term, this will likely limit buyers’ power but in time this might just be the corrective action home buyers were looking for to moderate prices and allow them some hope.

For those who already own their home, the effects of this hike may be immediate or delayed. With a variable rate mortgage, a direct impact will occur whereas those with a fixed rate will not feel it until they are ready for mortgage renewal. Also impacted by this will be personal and home equity lines of credit.

Safe to say, this latest announcement by The Bank of Canada will affect us all in different ways. If you are a buyer who has been anxiously waiting for the market to cool so you can jump in, this may just be your time. If you are an investor who had a lot of hot deals on the horizon, this may not excite you as borrow rates are going to increase and that may significantly decrease profit margins.

Either way, it seems most experts agree we will see home prices cool through the spring months and a potential rush to buy before the possibility of another round of interest rate hikes. Is it possible we might have a balanced market going into the summer? No one can predict the future especially with the instability of the current Covid situation and also the economic impacts of the war in Ukraine but all signs are pointing to a moderation of housing prices across Canada.


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