The Bank of Canada will announce next week whether or not it will hike interest rates further, causing many variable rate holders and mortgage rate shoppers to feel uncertain. The previous rate hike brought the overnight rate to 4.75% and came after an optimistic pause earlier in the year, however, with inflation and consumer spending rising, it’s expected another hike is coming this year, and maybe even this month, to achieve the Bank of Canada’s inflation goal of 2%.
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These changing rates have already impacted the housing market, especially in Ontario and British Columbia where major markets saw significant dips in average home prices since the rate hikes began in 2022. However, home prices have rebounded in much of the country and with interest rates on the rise, affordability is shrinking for prospective buyers.
In a recent survey of more than 1,200 Zoocasa readers, the majority of respondents said that the Bank of Canada’s decision to hold interest rates in April had a positive impact on their interest in the real estate market. This positive impact resulted in national home sales rising month-over-month by 5.1% in May and average prices increasing in nearly every major market.
It’s unclear yet exactly how the Bank of Canada’s June rate hike affected the market, but it is clear that prospective homebuyers and homeowners with variable rates aren’t looking forward to another increase. In the same Zoocasa survey conducted this spring, 71.3% of respondents said that if the Bank of Canada announces another increase to the overnight lending rate later this year it would negatively impact their interest in real estate.
Of those who responded that were currently shopping for a mortgage pre-approval, 31.9% were interested in a fixed-rate and 20.4% were interested in a variable rate. With rates potentially increasing again, this will have a major impact on those shopping for or with existing variable-rate mortgages.
Still, those who are interested in buying will likely not be completely deterred by the prospect of rising interest rates, it may just slow down their plans. Though 63.6% of respondents said they didn’t expect housing to become more affordable within the next year, 67.4% said they are still looking to buy a home in the near future.
The majority of respondents are planning to wait more than 7 months before making a home purchase, with 62.9% planning to wait a year or longer, suggesting there is some hesitancy among buyers to enter the market now. Sellers showed similar hesitation, as 41.9% of respondents said they plan to sell a home in the near future and 73.4% said they were planning to wait at least a year or longer. Without sellers adequately supplying the market with new inventory, low supply will be a long-lasting issue.
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