Today the Bank of Canada announced an increase in interest rates by 50 basis points, the second increase of the year. The move means that the interest rate currently stands at 1%, having been slashed to near zero in response to the pandemic in March 2020. Despite both provincial and federal government announcements related to affordable housing, the 62% increase in overall house prices in Canada over the past 2 years, as well as rising inflation, has forced the Bank to continue to raise its rates.
In January, the central bank predicted that inflation would average 5.1% in the first quarter, before slowing down to 3% by the end of the year. That number is expected to remain above 4% through most of 2022, with the bank’s eventual target of hitting 2% not expected to come to fruition until 2024. Higher interest rates are intended to encourage saving and discourage borrowing and spending, which may help reduce consumer demand in the economy and bring down inflation.
Read: Will Price Increases in the GTA Slow in the Spring?
As interest rates rise, Zoocasa has 5 tips to help you navigate the housing market this Spring.
Five tips to help you navigate the housing market
- Get pre-approved
Get pre-approved for both fixed and/or variable rate mortgages before the rates go up again. Many of the variable rate mortgages have not increased yet, but they will, particularly as interest rates continue to climb through the year. The spread between a fixed and a variable rate mortgage is expected to shrink with the next Bank of Canada rate hike and announcement in June. The Stress Test, designed to protect Canadians from becoming financially at risk when interest rates increased again, meant buyers needed to qualify at either a 5.25% or their contract rate plus 2%, whichever is higher. According to a Reuters report, more than 90% of mortgage borrowers in Canada were tested at a rate of 5.25%. With the five year-fixed mortgage rate now around 4.29%, borrowers must prove they are able to pay loans with an interest rate of 6.29%.
- Know your local markets
Whether you’re looking to buy or sell, research your local markets. Benchmark prices have begun to decline in some key markets, but not in all cities or for all home types. As this month’s TRREB release shows, the average price of a home in the City of Toronto has increased from $1,210,889 to $1,218,546. The breakdown shows that the average price of a detached house and a condo townhouse have actually decreased (by 10% to $1,920,018 and by 15% to $959,938 respectively), while semi-detached houses and condo apartments have gone up (by 20% to $1,545,447 and by 15% to $832,351 respectively). In comparison, Peel has seen dips in almost all housing types. The average price has decreased from $1,317,192 to $1,269,242. Detached homes have dipped 4%, semi-detached by 5%, and condo townhouses by 3% – condo apartments have seen an almost negligible increase of $362. Ottawa, another of Canada’s major markets, is seeing prices continuing to trend upwards, albeit only increasing by 2-3% month over month in March. Condominium class properties increased to $479,405 from $466,682 while residential properties went from $812,813 to $853,615.
- Have your home appraised soon
If you are planning to sell, this will help you position your property and align it with your local market. As prices have started to dip in some areas, secure your appraisal now, as property values could drop by greater margins than we saw in March. This could impact the value of your home, as well as your potential to secure additional funds from your lender.
- Prepare for changes in the market
As rates are expected to continue increasing throughout the year, things are likely to change fairly quickly. Those who are ready with pre-approvals, preferred locations and are available to visit properties with comparable data will be in a much better position to get a property in their budget and preferred location. Despite the dip in pricing, demand for housing is still high – the latest report from CREA suggests that while there was an increase in new listings (23.7% month over month) the sales to new listings ratio (SNLR) remained deeply in a seller’s market at 75.3%. Additionally, there were a record low 1.6 months of inventory on a national basis in February. This indicates the number of months it would take to sell the current stock on the market at the current rate of sales activity. The long term average for this metric is a little over five months. The demand for the minimal stock is still competitive, so preparation is key.
- Work with an experienced, local agent
A local agent who has the expertise to handle market fluctuations as you prepare to sell your property or search for your next home. An experienced agent will watch for properties that didn’t sell on an offer night, were terminated or expired and may be relisted at a lower price point.
Our award-winning team has the data and tools to help you navigate the market this spring. If you have questions or concerns, contact us today to speak with an experienced real estate agent.