Bank of Canada increases interest rates by 25 basis points

The Bank of Canada increased interest rates once again by 25 basis points this week, recording the first time since April 2001 that the benchmark rate hit 5%.

The move was widely expected by industry experts and leading economists across the country as recent labour market results showed an additional 60,000 jobs added through the month of June, further fueling the economy.

As we discussed in previous posts, the effects of interest rate hikes can sometimes take up to 18 months to play out in the economy which makes future rate decisions inherently difficult to predict. However, while experts are varied on their opinion as to where rates go next, many believe we’re on course for another rate increase in September and may not see further relief until the economy starts to show more compelling signs of cooling.

As rates continue to rise, you could expect some homeowners on variable rate mortgages to start feeling the pressure and begin considering their options. Given the rise in prices over recent years, a number of those on variable rate mortgages have also experienced significant appreciation from their original purchase price and this may tempt some to consider selling. This may be a viable strategy for investors on variable rate mortgages who do not need to repurchase immediately but for those considering selling their primary home, the challenge inevitably becomes where do you go next. Whether you’re an investor or someone who owns their home and evaluating your next move, it’s important to carefully consider where prices are going in the future in addition to where rates are today.

Our current outlook, given Government of Canada immigration targets alongside the numerous challenges of bringing sufficient new housing supply to market, is that prices over the mid to long term are going to continue to rise and increases could be significant if increasing demand from new residents continues to outpace available new supply across the market.

So while it may be tempting to sell, exit the market temporarily and capture equity today in chase of relief from increasing interest rates, you may in fact find it more challenging to re-enter the market later and/or leave significant future upside on the table if you are an investor. Some of our investor clients are actually taking the reverse approach and looking at the more challenged current market as a chance to scoop up opportunities that represent good buys today and are expected to look like great buys in the future as demand increases and supply continues to be constrained. Such buyers are looking both to the resale market for value investing opportunities as well as the local pre-construction market where delivery of many new projects aren’t expected until 2025-2026 or beyond and therefore are less subjected to interest rates of today while remaining able to take advantage of expected appreciation across the market.

We’d love to hear your thoughts! Are you a condo owner considering selling or an investor considering buying to take advantage of the increasing imbalance that’s expected between supply and demand? Need the latest advice to help navigate these decisions in the current market? We’re here to help!

Please remember that everyone’s situation is different and as a result, this article should not be considered as definitive real estate or financial advice. If you’re unsure of what your best move is in the current market, reach out to us and a member of the CC team would be happy to look at your specific situation and goals along with the latest market data to ensure you’re making an informed decision.

-CC