Why Does The Bank Of Canada Raise Its Target Interest Rate By 50 Basis Points?

For the sixth time this year, the Bank of Canada recently increased its target interest rate by 50 basis points. 

How will these rate increases affect homeowners? 

A recent study by the Manulife Bank of Canada found that 25% of homeowners anticipate having to sell their property if interest rates keep rising. The same poll revealed that nearly one-fifth of homeowners already struggle to make ends meet. Without a doubt, increasing interest rates will have a significant impact on borrowers. 

Sales activity has slowed down after a more than two-year upswing, prices aren't rising as high as they once were, and the market's unsustainable patterns from the previous few years are waning.

Does this indicate that a crash or a strong correction is imminent for the housing market? 

There are many different perspectives from market analysts on what is happening, but one thing is certain: homeowners are feeling the effects of increased rates. 

• Rising interest rates decrease homebuyers' purchasing power and raise the carrying costs for current homeowners with variable mortgages. The number of homebuyers in the upcoming months will continue to decrease when these two factors are combined with new rigid mortgage stress tests. 

• At the same time, homebuyers might have taken out a fixed-rate mortgage, meaning they might not have to worry about rising rates until their mortgage is up for renewal in a few years.

• Many of these folks will also think about renovating their current residence and moving their mortgage to a new home with a cheaper interest rate. Therefore, even though the overall market might not experience a rise in sales activity, many people who are in a good position might profit from the market's depreciation and their lower locked-in interest rates. 

What are ongoing interest rates on property? 

The top licensed banks in Canada are presently offering exceptional interest rates on five-year fixed mortgages of about 4.81 percent. According to the Best Real Estate Agent in Brampton, "Homebuyers can frequently negotiate the interest rate for mortgage financing based on their creditworthiness and the extent to which they conduct other banking business with the mortgage lender" (CREA).

Simply put, increased interest rates will have an impact on mortgages all throughout Canada and have a significant negative impact on the Canadian real estate market. 

Home prices in the GTA have recently been supported by price declines in the spring and summer that somewhat offset the effects of increased borrowing costs on average monthly mortgage payments. The Bank of Canada has recently made statements that seem to point to the tightening cycle's conclusion.Bond yields decreased as a result, indicating that fixed mortgage rates may trend lower going forward, enhancing affordability, claims top realtor in Brampton.

What does a Brampton real estate agent predict will happen to Canadian real estate in the future? 

• Because of these previous reductions, analysts had anticipated rises to be at most modest through this year, but they now predict rates would rise steadily through 2024 before any pause occurs. 

• According to a top realtor in Brampton, we're going through one more year where I think it's going to be a steady lift-off." 

According to Best Real Estate Agent in Brampton, the "inflation target" is being raised year by year.

They also predicted that rates will likely peak around 5% in 2023 or 2024, rather than close to 10% as many economists anticipated just six months ago.