Hot off the press is the July 13th Bank of Canada (BOC) interest rate hike.

An increase in the benchmark rate of 1% is the BOC’s most aggressive hike since 1998.  According to the BOC, rates will need to continuously rise to cool down Canadas overheated economy.  High and broadening inflation was the impetus to “front-load” this path to higher rates.

The thinking is, increasing the benchmark interest rate will prevent high inflation from becoming entrenched, mitigating the economic difficulties Canadians are already facing.  Although some economists think inflation has peaked, the BOC does not expect the inflation rate to come down to 3% until next year.

So you may be wondering … what does this mean for buyers looking to qualify for a mortgage?  The most recent rate hike puts prime lending rates now at 3.7% – 4.7% and with the stress test borrowers will now have to qualify for 7% on fixed rate loans and 6% on variable loans.  Yikes.

The housing market is already feeling the effects of this new rate environment.

The red-hot pandemic market cooled early this year and sales and prices have been softening month over month ever since.  The huge price gains seen on single family homes have been experiencing a sharp decline while townhome and condo prices have had a softer landing.  At this time, national home sales projections remain elevated compared to their pre-pandemic averages but are lower than their 2021 peak.

So yes, things aren’t great for buyers or sellers but those most effected will likely be buyers who purchased a home in the last 2 years, they will be forced to cope with upside down mortgages for a while.

But there are still reasons to consider buying …

  • The rental market has a lot of inflationary pressure on it so renters can expect their rates to keep climbing.
  • If you’re an investor, this is the type of market you have been waiting for.
  • And remember multiple offers?  When buyers went bananas and home values were based solely on what pressured buyers were willing to spend?  Well those days are over.

Once buyers become comfortable with the new interest rate environment, and they absolutely will, they will find the game has changed.

And what about selling in these conditions?

The shift is sobering and will require a recalibration of expectations. February prices are now a thing of legend. Buyers are now writing low offers, offers with conditions and homes now take weeks to sell instead of days.

Until sellers adjust to these new prices and conditions, and they absolutely will, selling will be left up to only those who must make a move.

Do you have plans to buy or sell a home in 2022?

A recalibration of the market brings many opportunities to those willing to lean in … we can help you find them.

Jenn and Colin