The Bank of Canada has raised its interest rates three times since the beginning of 2022. The central bank's latest move on the first of June pushed the rate to 1.5 per cent, and indicating further hikes in the coming month to curb rising inflation. What does this mean for Canadians who have taken on debt? Many worry that rising rates will put a damper on home sales and lead to increased payments with lower valuations, but is this really the case? What are the other economic factors contributing to these changes, and how might they impact Canadian real estate moving forward? This article examines the most recent increases, their impacts on housing and borrowing costs, and what it means for Canadians looking to buy homes or investments today.
There are many economic factors at play besides Canadian interest rates
The cost of living has been rising, which means that the price of housing, food, gas and other items have proven to be rising as well. This is not only because these items are more expensive for you but also because there's more competition for those resources like land, fuel and transportation - especially in urban areas like Toronto or Vancouver and the suburban areas like Courtice, London and such where demand continues to climb rapidly and supply chain’s combating to meet surging demand.
What does this mean
Inflation is a measure of the increase in the general level of prices of goods and services. Inflation is a negative value in a country that is experiencing deflation, while it is positive in countries that are experiencing inflation. Interest rates are affected by many factors including economic growth and unemployment rate, but also by expectations about future inflation amongst many other considerations.
Can Canadian’s afford the mortgage rate hikes?
The answer to this question is an unequivocal yes. While the average household income in Canada is expected to rise at a slower pace than inflation over the next few years, there’s no doubt that homeowners can afford higher mortgage rates. In fact, according to Harvard University professor Edward Glaeser and other economists including Ben Bernanke and Paul Krugman, rising interest rates actually increase affordability by making it easier for people who want homes to get them.
After all, if mortgage payments were already high enough with higher home prices for everyone who wanted one, then raising interest rates and a decline in housing prices doesn’t make much of a difference in payments over the long run, does it!
What does all this mean for the future?
- The Bank of Canada is likely to continue raising rates, but that won't stop the real estate market from growing.
- Despite the continued rate hikes; immigration and pent-up demand will continue to drive real estate in the upward direction.
The market is volatile, however, and it's important that you understand the investment that you're making into your property. The value of the Canadian real estate market will continue to rise and fall as is expected with any market that fluctuates so greatly over time. There are many risks associated with investing heavily into this type of asset but also many rewards if one chooses their options wisely!
In the last few years, there has been a lot of speculation in the real estate industry. People are talking about how they want to invest in real estate but they don’t know where to start. In order to help you understand more about investing in real estate and how it can benefit your financial future, here are some things you should consider:
- The market will continue to grow over time because of increased employment rates and population growth.
- The government is incentivizing renters who have saved up enough money for a down payment to buy their own home instead of renting out an apartment or house. This means that more people will be looking at buying houses instead of renting them which may cause prices for homes or condos (if applicable) could increase even more than what we've seen before! Also keep in mind that many first-time buyers tend not only pay cash but also put down larger deposits compared with older Canadians who might have less equity built up over time due since owning their homes longer without any renovations being done back then during those periods when inflation wasn't as high."
The Bank of Canada is likely to continue raising rates, but that won't stop the real estate market from growing.
The Bank of Canada is likely to continue raising rates, but that won't stop the real estate market from growing.
The current trend of rising interest rates is not an ideal direction for Canadian homeowners and buyers, but it's unlikely to be a death knell for the housing market.
While some experts believe that higher interest rates will reduce demand for homes, others point out that changes in mortgage rules have made home ownership more accessible than ever before. They say this means rising rates aren't likely to dent sales or prices for long term.
Conclusion
The bottom line is that, despite the continued rate hikes, the Canadian housing market isn't going anywhere. Immigration and pent-up demand will continue to drive real estate in an upward direction, and with a government incentive for renters in the horizon as of late, this is clear indication renting isn't a viable option for most any longer. Thus, housing will continue to keep trending upwards as it appears from what we understand.
Contact us to discuss any questions or concerns you may have. Look forward to helping with any questions.