ERIN HENRY
Broker/Manager, Royal LePage Real Estate Services Ltd. Brokerage
Erin Henry is an experienced Broker/Manager providing comprehensive real estate services to home buyers and sellers with over 30 years of dedication and expertise! erinhenry.ca
The Bank of Canada increased its overnight rate on April 13th, 2022. With a staggering .50% jump, the rate is now at 1%. Lenders followed suit, bringing their rates up to 2.70% – 3.20%.
What was the rationale and how will this impact you?
Let’s start with the why.
In a statement alongside their decision, the Bank of Canada said, “With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further.”
“In Canada, growth is strong and the economy is moving into excess demand. Labour markets are tight, and wage growth is back to its pre-pandemic pace and rising….Consumer spending is strengthening…inflation is expected to average almost 6% in the first half of 2022 and remain well above the control range throughout this year.” *
The Bank of Canada hasn’t raised its rates since Spring of 2000, with anticipation of additional rate hikes to come later this year, in efforts to calm the market frenzy and allow for more affordable housing.
Now let’s assess the impact it will have on you.
First and foremost, the increase will affect the affordability of homes in Canada’s real estate market. As though, recent history hasn’t proven difficult enough, to obtain real estate, Toronto real estate expert David Fleming says, “an increase in rates is purchasing power decreasing”. For example, a buyer who was once approved for $750,000 may now only approve for $650,000. The upside to this however it will ultimately balance an inflated market. “There’s a very clear correlation [that is] interest rates go up, real estate demand and real estate prices move down. I think we can see moderating house prices in Canada.**
Those who already own a home, particularly those holding a variable rate mortgage, can expect to see a direct impact on mortgage rates. That also largely impacts home equity line of credit holders. Those with fixed rates will only see an impact as they need to renew. This in turn will impact their decision whether to sit tight or make a move. Again, contributing to a more corrected or balanced real estate market.
The Bank of Canada has whispered there will be another large rate increase to come in the summer which will push buyers to act quickly to avoid their low rate expiring and of course, a rate increase potentially to come. We will see a flurry of activity, then Fleming predicts the market will begin to cool down as inventory starts to spike.
*The Bank of Canada
**David Fleming
