Did you hear the news? While everyone was waking up this morning and getting ready for their day, The Bank of Canada hiked their trend setting interest rate by another 25 basis points to 4.45%. 

What does this mean for the Canadian housing market? Considering the spring of 2023 has shown us there’s lots of buyers but not a lot of sellers, we suspect this rate hike will cause a slight reduction in market activity with the seasonal effect of summer approaching. 

Even without the Bank of Canada’s rate hike, the market will most likely slow down as we begin to enter summer. With all these rate hikes over the last year or more, the big question is, how  are these rate increases going to affect the future real estate market?

Long term effects of the Bank of Canada’s interest rate hike on mortgages

When interest rates rise, there’s a delayed effect where mortgages taken out during the Covid pandemic era, up to 3 to 5 years previously, we’re achieved with very low interest rates.

Take this for example: Prior to the pandemic, you could acquire a 5-year mortgage with an interest rate of 2%. Fast forward to the present day and that same mortgage will yield an almost 5% rate.

Many of these mortgages will reset in the next 6 months to 2 to 3 years. As a result, mortgage holders will be faced with dramatically increased mortgage payments. To the average Canadian home owner, there’s no question that this will come as a complete shock.  

Bank of Canada’s interest rate increase and the impact on the average homeowner

The ripple effect from all these rate hikes over the last year plus will most likely have a significant impact on the Canadian economy and potentially the real estate market. 

These rising prices will not be sustainable going forward. We don’t expect these increases to continue within the next 0 to 36 months and should see prices level back out. Why? The average Canadian will experience such a payment shock which will affect the total available disposable income and allowable spend towards real estate.

This is all speculation, but as these dark clouds loom over the Canadian economy over the next 1 to 3 years, as homeowners, we need to be informed and be aware of the impact potential. 

If you’re thinking of selling your home, now might be the best time to register on the market. The future however is quite uncertain if you’re considering either buying or selling real estate in Canada, and those who face a mortgage reset in the next 0 to 36 months.

If you have any questions on the Bank of Canada’s new rate hikes and the potential future impact it holds, please call us at 604-657-7936 or visit us at www.andrewhasman.com.