The Bank of Canada announced on Wednesday that it was hiking interest rates for the first time in seven years. This news has caused a lot of speculation about what will happen when rates start climbing. One thing is for sure: Toronto's housing market is going to be affected. In this blog post, we will take a look at the reasons prices are so high now and what to expect when interest rates start going up
The main reason prices are so high right now is because of a combination of low-interest rates and a shortage of inventory. Low-interest rates have made it cheaper to borrow money, which has led to more demand for housing. At the same time, there has been a shortage of homes available for sale, which has driven up prices.
When interest rates start to rise, we can expect that the demand for housing will decrease. This is because it will become more expensive to borrow money, and people will be less likely to buy a home if they think prices are going to start falling. However, it's important to keep in mind that Toronto's housing market is very resilient and will require several rate increases before seeing things come down. The psychological impact from buyers/sellers when they see governments increasing rates, may solve the housing shortage problem we are seeing.
Here’s how to do it:
Bank of Canada increased the rate by 0.25% to 0.5% on March 2nd, 2022; so the following will be affected:
- Prime interest rate: Credit accounts use Prime Rate to loan out funds (i.e. Prime +1%)
- Mortgage (variable) interest rates
- GIC interest rates
etc. will also increase by 0.25% (example only).
Notice fixed rate is not on the list. Fixed interest rates are affected by bond yields in the market, which the BoC doesn't control.
This interest rate hike will have an impact on house prices; we can expect to see a decrease in values as buyers become more cautious. However, it's important to note that this won't happen overnight – the process will likely take several months or even years. So if you're thinking about buying a home in Toronto, you may want to consider talking to a real estate professional and seeing your options.
It's important to remember that interest rates are just one factor that affects the housing market. There are many other factors, such as job security and immigration, that can also have an impact. So, even if interest rates do start climbing, it's not necessarily going to cause a crash in the market.
If you're thinking of buying a home in Toronto, it's important to do your research and speak to a professional before making any decisions. interest rates may be rising, but there are still many reasons to believe that now is a good time to buy a home in Toronto. Inventory shortages and low-interest rates are just two of the factors that are driving prices up right now.
In short, the interest rate hike announced by the Bank of Canada today is likely to have little impact on Toronto's housing market; however, with several more rate increases in the future prices will probably start to tapper and even fall as buyers become more cautious, but it's important to keep in mind that this process
If you have any questions about the interest rate hike or what steps you and your family should take feel free to reach out to our team for advice.
