There are already some short-term signs that Canada’s housing market is cooling as the Bank of Canada begins to raise its base rate – but some mortgage experts doubt the long-term impact of the move.
“We’ve had free money for the last two years,” said Nasma Ali, a Toronto mortgage broker and founder of a real estate agency called One Group.
But now that interest rates are rising, with The Bank of Canada has raised its reference interest rate on Wednesday by half a percentage point to one percent, Ali says paying these higher costs will be a “hard pill to swallow” for some prospective home buyers
“Now people will think twice,” she told CBC News.
According to the Toronto Regional Real Estate Board, average prices in the Toronto area fell from $ 1.33 million in February to $ 1.29 million in March, countering the seasonal trend. Ali says she has noticed a drop in market prices and fewer offers for housing in general.
Nasma Ali, a Toronto mortgage broker and founder of a real estate agency called One Group, says the housing market is cooling because of rising interest rates. (Submitted by Nasma Ali)
But as banks raise interest rates on floating mortgages and credit lines, discouraging some prospective homebuyers from entering the market, Ali and other housing experts are wondering if the effect will continue.
The increase in the reference rate is the largest in about two decades – an attempt to control rising inflation. But rates are still lower than before the pandemic. The bank cut interest rates just above zero in March 2020 after COVID-19 struck for the first time.
“The latest increase will have a cooling effect,” said James Laird, president of Canwise Financial and co-founder of Ratehub.ca, a website that compares interest rates for consumers.
But Laird says that will not be the only factor influencing the market.
“We have a lot of new Canadians coming to the country. They are looking to buy housing. There is still a supply problem.”
However, Laird and Ali warn that house prices may fall, but buyers will pay more interest on their monthly mortgage payments.
Ali says this may affect first-time home buyers the most.
‘All this nonsense’
Dustan Woodhouse, president of Mortgage Architects, a Vancouver-based brokerage firm, said the report did not affect the majority of people who already own homes, as most have fixed-rate mortgages.
“All this nonsense about what all this means doesn’t really mean much,” he said.
Mortgage expert Dustan Woodhouse does not believe that raising interest rates will affect home buyers who may pass the mortgage stress test. (Submitted by Dustan Woodhouse)
Woodhouse does not believe that raising interest rates will discourage most home buyers from entering the market for the first time if they can afford it in the first place.
“These are not equal conditions,” he said. “But the reality is – although detached homes have become the realm of the upper middle class, there are enough people in this category compared to offering housing to buy that the market is stable and strong.
In essence, for those who can pass the mortgage stress test and invest enough money, a higher interest rate will not stop them from making an offer, Woodhouse said.
But he says it could limit their spending on other things.
“That probably means a shorter queue in front of a restaurant like The Keg on Friday night. They won’t go out to a $ 150 dinner three times a month. Maybe just twice. Maybe just once.”
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