The final Bank of Canada (BoC) interest rate announcement is less than a week away, scheduled for December 7, 2022. This year to date, there have been six interest rate increases, including a record breaking 100 basis-point increase in July, the largest rate hike since 1998. With experts predicting another increase to the key overnight rate, here’s what homeowners and prospective buyers can expect.
Experts are Predicting an Increase of 25 to 50 Basis Points
Many Canadians with a variable-rate mortgage or a home equity line of credit are already feeling the impact. With another rate increase of 25 to 50 basis points expected next week, more homeowners with a variable-rate mortgage will be affected.
James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender explains: “The upcoming rate hike will mean even more Canadians will reach their trigger rate and trigger point. This only applies to those with a variable-rate mortgage with fixed payments. Borrowers with this type of mortgage have not been forced to increase their payments to the full extent of the rate hikes this year. Anyone with a variable-rate mortgage that has a variable payment has been forced to absorb the full impact of this year’s rate hikes.”
The Impact on the Real Estate Market to Date
Sales volume is down substantially year-over-year in most cities across the country. According to the Canadian Real Estate Association, residential sales activity across Canada in October was down 36% year-over-year, and those in major markets are feeling the biggest impact. Sales activity in Fraser Valley was down 53.9% year-over-year, Hamilton-Burlington fell 40.1%, and Greater Toronto Area (GTA) followed suit, declining 49.3% year-over-year. Almost every city and region covered by the Canadian Real Estate Association has experienced a decline in sales activity, although some markets like Regina and Thunder Bay have only experienced marginal declines of 4.6% and 4.7% respectively.
The goal of the interest rate increases is to manage inflation, and home prices across the country reflect that. After reaching staggering highs during the pandemic, prices have fallen in many markets consistently as interest rates have grown. In Ontario, prices are down 18.26% from February 2022, and British Columbia prices experienced a dip of 8.51%. Every city in the GTA has experienced a price decrease since February 2022, read more about that here.
There is a light at the end of the tunnel; the number of homes sold nationally climbed 1.3% from September to October 2022. This is the first time we’ve seen gains on a national level since February 2022. The number of listings also increased in October, meaning more inventory for prospective buyers to choose from. This downward pressure on home prices leads to more buying power. Although high interest rates are here to stay, it seems Canadians are adjusting to the higher cost of borrowing and the real estate market may continue to move in a slow but steady, upward direction.
Ready to discuss your home buying plans and how the final interest rate announcement of 2022 may affect them? Give us a call today to speak to a real estate agent in your area. Keep an eye on our Market Insights blog for our predictions about what’s to come in 2023 and sign up for our newsletter to get updates sent directly to your inbox.
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