The Bank of Canada increased the overnight rate by 25 points today. This is not surprising to anyone who follows these things. Still, predictions for the implications to the real estate market are all over the place—the first time the Bank of Canada raised interest rates caused panic among buyers and sellers. Higher interest rates caused prices to drop, but a lack of consumer confidence caused the real estate market to come to a complete stop. Now, we’re all watching closely to see if today’s announcement will have the same effect. The market returned with gumption in May 2023, when it started to look like the interest rates were declining again. However, now they’re climbing up. So, what have we learned from the last time, and what are our predictions for how the real estate market will respond:
What have we learned from the last time? Rising interest rates cause house prices to trend downwards, but, more importantly, it causes a considerable decline in consumer confidence which has an outsized impact on the number of new listings and sales.
How does this rate change affect you?
If you are a Buyer
Resist the urge to wait for prices to go down before you buy a house. The declining prices do not equal the value of the interest rate hike. Prices will go down slightly, but your monthly payments will go up. So, you’ll spend (slightly) less on the house, but you’ll spend far longer paying it off at a much higher interest rate. Focus on your monthly carrying costs, not on the house’s total price.
If you are lucky enough to have a locked-in rate hold, buy something before that rate hold expires. Your mortgage pre-approval is gold right now.
Another reason to buy now rather than wait for prices to fall is that there will likely be no houses on the market when prices are low. Sellers in Toronto are generally unwilling to list their homes in low periods. Prices will be slightly lower, but there won’t be much for you to buy.
If you are a Seller
If you’ve been on the fence about listing your home, this is the time to do it. Most buyers have a pre-approval, which locks in their interest rate for 90 days. Take advantage of this pool of buyers who are ready and pre-approved. It is likely that once the majority of these pre-approvals expire, the real estate market will slow down.
If you are a homeowner:
Fixed-rate mortgage? Do nothing.
Variable rate mortgage? Call your mortgage broker and see if you can switch to a fixed rate.
Above all else, remember that buying and selling real estate is about your lifestyle. The right time to buy a house is when you need a new house. The right time to sell is when you’re ready for a new life phase. Houses are primarily places to keep us warm, dry and safe. Don’t let a fluctuating market get in between you and a home. To insulate yourself from market changes, always remember to buy within your means and spend as much cash as possible before you finance.
