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17 Jan

The 705 Area Code may be the Silver Lining to the First Rate Hike of 2018

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While the Bank of Canada’s rate hike announcement has added new meaning to the words “stress test,” the 705 area code may be the saving grace for first-time home owners. As predicted, the benchmark rate was raised another 25 basis points this morning and now sits at 1.25 percent. The big six banks have all followed suit with increases to their posted five-year fixed rates, with qualifying rates expected to also increase soon as well.

While this rate increase adds to the financial strain of first-time home ownership in particular, it may also set buyers’ sights further north where they can get more bang for their buck.

Said Mark Faris, CEO of the Faris Team, “In 2017, the average cost of a detached home in The City of Barrie was about $543,000, while in the City of Toronto it was nearly $1.4M; so home ownership in the 705 is still within reach for many people looking to buy their first home.” (IMS, January 17, 2018)

Although it’s a shock to mortgage holders and potential mortgage-holders’ systems, it shouldn’t be a surprise. Said Brian DePratto, senior economist at TD, “The ongoing strength in the Canadian economy no longer justifies emergency level interest rates.”

Canada’s economy in 2017 surpassed expectations prompting policymakers to increase the interest rate back to back in July and September. On top of those hikes, the Bank of Canada’s new “Stress Test” came into effect at the beginning of this month, making home ownership more challenging.

As for the impact on the real estate market, last month’s surge of sales was expected as January’s new mortgage rules loomed over home buyers. Benjamin Tal, CIBC’s deputy chief economist, is now expecting a cooldown as those who were hoping to get into a home before the new rules came in will most likely sit tight with family or continue to rent until Canada adjusts to the new conditions.

So, what does this mean for mortgage holders and first-time buyers in Canada? Mortgage Specialist, Tim Walker, explains,

“For first-time home buyers in Canada, continued rate hikes by the Bank of Canada could start to push more Canadians away from variable and into fixed mortgages, which would, at least for their selected term, temporarily protect them from the impact of further increases. For Canadians that currently hold variable rate mortgages, most will see an increase in monthly payments. While rate hikes and rumours of additional rate hikes can be nerve-racking for many Canadians, there are still many great reasons to stick with a variable rate mortgage – every situation is different, so it’s best to discuss with your mortgage broker whether or not “locking in” is the best option for you.”

Two more rate hikes are anticipated this year.

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