As I’m sure you have already heard the Bank of Canada (BOC) raised its overnight rate on July 12th by 25 basis points reaching 5 per cent for the first time since April 2001.
The BOC cited core inflation has been more persistent than expected and believes the economy is still in excess demand; supported by tight labor markets, high levels of household savings and rapid population growth which has now surpassed 40 million people!
The overnight lending rate correlates directly with prime rate which affects variable-rate and adjustable-rate mortgages, home equity lines of credit and any other products based off prime.
With this latest rate hike prime has gone from 6.95% to 7.20%.
If you have a variable-rate mortgage your payments will increase by $15.00 per month for every $100,000 of mortgage balance.
If you have a home equity line of credit your payments have increased by 0.25%.
The BOC now expects a return to the 2 per cent target rate in mid-2025 rather than next year. We might see rates start to drop around then but remember this is just a predication and it can change at any time based on how the economy is doing.
In housing, a faster than expected pick up in sales earlier this year, combined with a long-standing lack of supply pushed home prices higher than anticipated … and this trend is likely to persist, boosting already stubborn inflation.
The impact from this latest rate hike can already be felt with housing demand slowing, but the full impact on the economy will take some time, experts anticipate a slowing relatively soon.
The BOC suggests it may be pausing its rate hikes at 5 per cent but if the economy refuses to slow we could expect more hikes in the near future. So unfortunately, it’s expected that interest rates will remain higher for the foreseeable future.
If you have debts above a 7% interest rate there may be some options for you. Talk to your bank or broker about accessing equity in your home to consolidate the debt.
While rising interest rates can create big challenges for families it’s important to remember the BOC is focused on managing inflation rather than targeting specific sectors like the housing market.
For example, current residential sales in BC are pivoting away from sellers’ conditions … entering more balanced territory for buyers and sellers.
If you have been thinking of selling a home in Surrey, South Surrey, White Rock or the surrounding area we can help craft a plan that makes sense for you.
Please consider us a resource and reach out anytime.
Jenn and Colin
