The Bank of Canada announced its second rate hike of the year, increasing the overnight rate by 0.25% to 4.75%. The Bank cited “stubbornly high” inflation as the main factor for today’s rate hike. Variable rate holders and mortgage rate shoppers alike have been waiting for today’s rate announcement and will surely be impacted.
Enjoying our content? Subscribe to our free weekly newsletter to get Canadian real estate market insights, news, and reports straight to your inbox.
Fixed Rates Have Already Increased in Advance of the Rate Hike
The Bank of Canada previously promised to hold rates as long as inflation is moving in the right direction. However, the past couple of weeks have not unfolded as expected. James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender explains: “Since their last announcement, two things have happened that don’t align with their expectations. April inflation and Q1 economic growth, including consumer spending, came in higher than forecasted.”
Since these key economic indicators are not where they should be, many were prepared for rates to increase. Laird explained that fixed rates already increased ahead of this announcement because many experts were predicting a hike was inevitable.
Real Estate Competition Has Been Hot but Rising Rates May Have an Impact
In a recent survey of 1,200 Zoocasa readers, 76.1% of respondents said owning their own homes is important to them despite affordability and inventory concerns. In the same survey, respondents overwhelmingly said that if the Bank of Canada introduces further increases to the overnight lending rate it would negatively affect their interest in real estate. With 20.4% of respondents interested in a variable-rate mortgage and 19% interested in either a fixed or variable rate, this rate increase may lead to a cooling of the market as those without a mortgage pre-approval may now be able to afford approximately 10% less. However, those with an existing mortgage pre-approval may take advantage of their lower rate and still choose to be active in the market.
So far this spring, prospective buyers that spent previous seasons on the sidelines have come out in full force and inventory has not been able to keep up with demand in many major markets. For example, the Toronto Regional Real Estate Board reported that 15,194 new homes were listed last month, and though this was an increase of 3,830 from April 2023, it wasn’t enough to keep months of supply up. Months of supply for the region now sits at 2.2 months, down from 2.3 months in April and March 2023.
Now that rates have increased it will have a major impact on those with existing variable-rate mortgages. According to Ratehub.ca’s mortgage payment calculator, a homeowner who purchased a home in April 2023 at the national average price of $716,083 with a 10% down payment and a 5-yar variable rate of 5.5% previously had a monthly mortgage payment of $4,075. Now that rates have increased, the variable mortgage rate will increase to 5.80% and they will now pay $4,173 monthly, an additional $98 per month or $1,176 per year.
Patti is Zoocasa's Public Relations and Content Marketing Manager. Passionate about marketing and digital communication, she creates content to support Canadians throughout their real estate journey. Outside of Zoocasa, Patti can be found renovating her townhouse in Kitchener and exploring Waterloo region by foot or paddle.