Bank of Canada Increases Target Interest Rate by 50 Basis Points

The Bank of Canada recently raised its target interest rate by 50 basis points, the sixth interest rate hike this year.

What do these rate hikes mean for homeowners? According to a recent report from the Manulife Bank of Canada, 25 percent of homeowners say they will need to sell their home if rates continue to rise. The same survey also found that about one-fifth of homeowners already find it challenging to afford their homes.

Without question, borrowers are going to be seriously affected by higher interest rates.

After more than a two-year whirlwind, sales activity has slowed down, prices are not reaching the heights they once did, and the unsustainable trends in the market over the last few years are diminishing. 

So, does this mean that the housing market is on the cusp of a crash or a sharp correction? 

Market analysts have presented various insights into what is transpiring, but one thing is certain: higher rates are impacting homeowners. 

Rising rates reduce the purchasing power of home buyers and increase the carrying cost of current homeowners with a variable mortgage. Couple this with new inflexible mortgage stress tests, and the number of homebuyers in the coming months will continue to decline. 

At the same time, homeowners who may have bought a home might have entered into a fixed-rate mortgage, which means they may not need to worry about rising rates until their mortgage comes up for renewal in a few years. Many of these people will also consider upgrading their home and transferring their mortgage at a lower interest rate to the new property. So, while the general market may not see an increase in sales traffic, many who are well positioned can capitalize off of the devalued market and their lower locked-in interest rates. 

“Canada’s major chartered banks are currently advertising five-year fixed mortgage special interest rates of around 4.81 per cent. Homebuyers can often negotiate the interest rate for mortgage financing based on their creditworthiness and the degree to which they do other banking business with the mortgage lender,” according to the Canadian Real Estate Association (CREA).

Put simply, rising interest rates will impact mortgages across the country and weigh heavily on the Canadian real estate market.

“Home prices in the GTA have found support in recent months because price declines in the spring and summer mitigated the impact of higher borrowing costs on average monthly mortgage payments. The Bank of Canada’s most recent messaging suggests that they are reaching the end of their tightening cycle. Bond yields dipped as a result, suggesting that fixed mortgage rates may trend lower moving forward, which would help affordability,” says Toronto Regional Real Estate Board Chief Market Analyst Jason Mercer in a recent release.

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