Interest Rate Hike Could Motivate First-time Home Buyers in Simcoe County
After idling at half a per cent for the last seven years, the Bank of Canada has shifted into first gear, increasing its interest rate to 0.75 per cent. This rate increase, passed on Wednesday, July 12th, 2017, has been long-anticipated among analysts as they watched Canada emerge from the 2008-2009 recession ahead of the pack, having the fastest economic growth among Group of Seven nations.
The housing market has been fuelled by low interest rates over the last several years, encouraging Canadians to incur record-breaking debt. Since some of the big banks boosted their mortgage rates in advance of the rate hike, it’s no surprise that the official announcement by the Bank of Canada today has already caused three more big banks to raise their prime rates, with other lending institutions likely to follow suit. What will this mean for Canadians?
The Housing Market
Although the Toronto Real Estate Board reported a 37.3 per cent drop in sales in the Greater Toronto Area (GTA) over the same period last year, Barrie’s year-over-year sales of detached homes have increased by an average of four per cent (Zolo, June 11-July 9, 2017). The Barrie and District Association of Realtors’ (BDAR) June 2017 statistics also reported a 14 per cent increase in the average selling price of detached and residential homes in Barrie.
“The large spike in sales we saw earlier this year is moving back towards more normal levels this summer,” BDAR president Rob Alexander said. “Prices are still on the rise, but not at the rates we were seeing previously.”
Mark Faris, Chief Executive Officer and Broker, Royal LePage First Contact Realty The Faris Team, Brokerage agrees. “Since the Ontario fair housing plan was announced back in April, we have noticed a lot of buyers sitting on the sideline to see how the market is affected. Although we can’t say for sure, I believe the newly-announced rate increase will be a catalyst to unleash the pent-up demand of buyers before another potential increase in rates. House inventory has increased, making it a great time for buyers to take advantage and jump into the market.”
Mortgages
Variable-rate mortgage holders will see an increase in the rate they are paying overnight, while fixed-rate mortgage home owners won’t feel the effect until their term comes to an end. Says Preet Banerjee, author of Stop Over-Thinking Your Money, it is plausible that, if your fixed-rate mortgage is up for renewal in the near future, you may be able to renew for a better rate than you originally had.
What are the benefits?
Savvy savers and seniors with fixed incomes connected to their retirement portfolios who have been penalized by low interest rates will eventually benefit from this rate hike. Says Banerjee, “One of the benefits of an interest rate increase is that, we will slowly start to see an increase in interest rates offered on deposit products like GICs, high interest savings accounts….”
This interest rate increase may mark the season of easy money coming to a close; the result of this change may well be an adjustment in attitudes toward borrowing.