In September, the Bank of Canada announced another interest rate increase, increasing the overnight rate by 0.25 basis points, to 1%, in a move that mostly surprised markets. The move may also come as a surprise to many homeowners or potential buyers as borrowing costs are now on the rise. For many Canadians who are struggling to pay their mortgage or get on the property ladder to begin with, this news wasn’t well received. Especially in markets where property values have remained high, like Toronto and our beloved Metro Vancouver, how will this interest rate rise stimulate growth in the property market or is it set to cause property values to come in the years ahead?
When we look at the costs of a mortgage and how this interest rate rise will impact costs, many of the big banks noted that they were increasing their prime rate from 2.95% to 3.2% after the B of C announcement in early September. So If you have a variable rate mortgage, borrowers will need to expect to pay an extra 0.25 basis points moving forward. Additionally, banks began to increase their fixed rate mortgage offerings following the Bank of Canada announcement.
Although these increases appear to be relatively small, it will slowly chip away at overall buying power moving forward. One would imagine housing prices should eventually begin to reflect that. In Metro Vancouver, the market is still healthy and there are plenty of properties – especially condos and townhouses – that are selling quickly at record high prices. However, we are starting to see a slight slowdown in detached homes and properties over $1 million in value. Although they are still selling, the time to sell is much longer than we have seen in the past 2-3 years.
If interest rates continue to move upward, will this slight slowdown be the trend for the foreseeable future? What are your thoughts? Share them or get in touch to find out more about the market. I’d love to hear from you…