By Christopher Alexander

Regional Director, RE/MAX INTEGRA Ontario-Atlantic Canada

 

The Bank of Canada’s latest interest rate announcement has been trending since its last announcement six weeks ago – and for good reason. The big banks often follow the Bank of Canada’s lead when it comes to setting their interest rates for mortgages, home equity lines of credit and other loans. While the Bank didn’t hike its rate this time around, you can be sure that it will sooner than later. After all, what goes down must come up… or something to that effect.

So, why should you care about the Bank’s next move?

A little background

The slumping oil sector prompted the Bank to drop its key lending rate twice in 2015, in an effort to boost the sagging economy. It worked. Following better-than-expected economic performance this year, the Bank followed up with an interest rate hike for the first time in almost seven years – the first in July 2017, and a second in September.

Rate hikes come in threes?

If the economy continues to grow at 2017’s healthy pace, the Bank will certainly raise its interest rate again. Interest rates have a direct correlation to economic performance. However, there have been rumours that, depending on how the real estate market performs this fall, the bank may hold off on further hikes until 2018.

It’s tough to pinpoint the effects of the past two rate hikes on the GTA housing market, because they happened in conjunction with the fallout of Ontario’s Fair Housing Plan. The rest of the country has shown resilience to past rate hikes, so if they rise another quarter point I don’t see it having much impact. Even with rates rising 0.75 per cent over this year, Canadians would still be in very affordable territory with ample buying power. Good news for consumers and real estate agents alike.

Actual effects of an interest rate hike versus knee-jerk reaction is two very different things. Expect to see homebuyers delaying purchases in an effort to save up more money to qualify for their dream homes. If the Bank of Canada announces further rate hikes, consumers with pre-approved mortgage rates and 120-day rate holds could rush to buy before their guaranteed rate goes up in smoke.

In the grand scheme of things, we’re still a long way from double-digit interest rates. In 1981, the posted five-year fixed rate was 21.75 per cent. Ouch!

Let cooler heads prevail and continue to reinforce the long-term view: a home is a sound investment. What other investment vehicle allows you to buy something, use it, and still gain appreciation value at the end of it all?

Other than a blip in the early ’90s, Toronto has seen house price appreciation since the mid-1960s. With that said, the GTA is not in a housing bubble. The market fundamentals are too strong, with limited inventory, a great local economy, and our GDP hovering at a high. The GTA’s population is expected to grow by almost three million people by 2045. All of these factors will continue to contribute to a healthy real estate market for years to come, despite a possible increase by the BoC.

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