TORONTO — Housing experts say potential buyers hoping Wednesday’s interest rate hike will calm the country’s stormy housing market will likely be disappointed.
They believe pent-up demand for homes is so high and supply still so scarce that the Bank of Canada’s decision to raise the rate to 0.5% won’t do much for the housing market.
“In the past, when there was an increase in interest rates, people would say ‘maybe it’s not the time to buy’, but it’s the opposite,” said Michelle Gilbert , a Toronto broker with Sage Real Estate Ltd.
“I have so many people who said ‘I’m going to have my rate blocked or my pre-approved’… They’re good to go.”
His clients aren’t letting rising rates deter them from buying, as interest rates are still lower than they were before the pandemic and they’ve lived through years of rising home prices.
Real estate boards reported soaring prices and a wave of selling through much of the pandemic as buyers rushed to take advantage of the 0.25% interest rate instituted under the Bank of Canada governor’s predecessor , Tiff Macklem, Stephen Poloz, about two years ago as the country plunged into the COVID-19 health crisis.
In typically warm markets like Toronto and Vancouver, the average home price has topped $1 million, and the suburban and rural areas surrounding those cities have also seen the cost of a home soar.
But in recent months new listings have plummeted and estate agents and buyers are lamenting a lack of properties which has further tilted the market in favor of sellers.
The lack of supply, coupled with the feeling that low interest rates won’t stay, is making some even more eager to buy.
Gilbert said a property on a busy street unexpectedly received 20 offers last night.
“It’s a sign that people are willing to sacrifice on things that wouldn’t have been so good for the average shopper just to get in.”
Gilbert has noticed that his clients want to enter the market while they can and thinks they won’t find better terms until there is a significant increase in supply or investors are held to cover higher down payments, deterring them from buying.
“Even though we had like double the inventory, the demand is crazy and it’s the demand that’s the problem,” she said.
“We have so many people who want to buy.”
Gilbert’s views are bolstered by analysis from Zoocasa showing that interest rate increases correlate with slower sales figures, but have no major impact on prices.
The real estate listing site compared Toronto’s average monthly home price and sales volumes between the start of 2017 and the end of 2019 – a period that covers the last five times the rate was increased – with the rate average discounted five-year fixed mortgage over the same period. period.
The analysis found that 2018 saw 78,018 sales, the lowest level in recent years, but attributed the number to the new mortgage stress test at the time, which reduced purchasing power.
After the rate hikes, there were “very small movements” in the average price. The largest month-over-month price decline after the interest rate announcement came in November 2018, when prices fell 2.35%, and the largest was seen in February 2018 , when prices rose more than 4%.
These monthly declines and gains are “fairly similar” to price trends in 2017 and 2019, suggesting that seasonality triggered the small swings.
Although the impact of interest rates on prices may be limited, Wednesday’s rise will immediately affect some mortgage holders.
Interest rate hikes typically weigh on homeowners with variable rate mortgages, as many banks use the central bank’s policy rate to dictate how they should change their prime interest rate. RBC Royal Bank announced that it is increasing its prime rate from 2.45% to 2.70%, effective Thursday.
Those with fixed rate mortgages may see increases when they renew in future years.
Estee Zacks, the Toronto owner of Strategic Mortgage Solutions Inc., has noticed a recent increase in rate lock requests, which freeze mortgage rates for up to 130 days.
“They’re always pushing to get more houses because house prices have gone up faster than people’s incomes,” she said.
“People ask me more often ‘if I can’t get into that $1.1m pre-approval metric at the top by the banks, is there anything else that can be done?’ “”
To cope, Gilbert sees people who have already paid off one mortgage take on another to help children get into the market.
She said: “We have a lot of people who are willing to sacrifice their future debt so they can get in now.”
This report from The Canadian Press was first published on March 2, 2022
