This article is written by Natalka Falcomer, VP, Corporate Development and Chestnut Park staff member Rachelle Bahamondes

 

Canadas interest rates go up once again.

 

As predicted by economists Bank of Canada has increased interest rates once again. The rates have been raised by a quarter of a percent bringing it to 1.75%. This is the highest its been since December 2008, and according to CIBC economist Avery Shenfield, it looks like BOC might be hiking rates at a faster pace going into 2019 with the potential of another increase before the end of 2018. So, what does this mean for the housing market?

 

 

 

Rising interest rates could possibly put a downward pressure on home sales. This is because interest rates lead to higher mortgage rates and higher mortgage rates make buying a home less affordable, squeezing out most buyers. We know that, for most buyers, affordability is the most critical factor when determining whether or not someone is going to buy. In fact, Canada Mortgage and Housing Corporation’s (CMHC) recent study concluded that “almost twice as many first-time buyers reported price/affordability as being the most important factor when buying a home”. Some point to this “squeeze on buyers” and the simple economic principle of supply and demand to support for the belief that the end is near. Perhaps, however, this knee-jerk belief is not entirely true?

 

Although the rising interest rates may cause fear for home buyers, economists agree that the rising rate environment has had a positive impact on the market. Stricter mortgage rules and rising interest rates have taken the market out of “bubble territory”. The market is now more balanced and healthier. Rising interest rates have also addressed another “elephant in the room” – conspicuous consumption debt. According to a variety of bank reports, Canadians are paying down their debt at much greater rates and the accumulation of new debt is at its slowest pace in 35 years.

 

 

The Canadian economy continues to operate close to its potential. According to recent data, the housing markets are beginning to stabilize following a weak start to 2018. With stronger sales and price growth posted throughout the GTA last month things are starting to look up for the housing market. The Toronto Real Estate Board says there were 7,492 sales in October 2018, jumping up six percent from the previous year. The average sale price was up 3.5 percent from the previous years and up one percent since September 2018. While these numbers are positive for those who invested in real estate, these numbers reveal a different issue at the heart of affordability: the price of the property and not just the interest rate. 

Older Blog Posts