Rising Mortgage Rates – CREA weighs in on the Bank of Canada increases

With the Bank of Canada raising the interest rate to 2.5%, and further increases in sight, many Canadians are wondering what the future holds for lending, in particular as it relates to mortgages.

The Canadian Real Estate Association (CREA) posted a blog shortly before the latest hike with speculations on what the Bank of Canada might do in 2023 that I wanted to share.

CREA Director and Senior Economist, Housing Data and Market Analysis, Shaun Cathcart says the Bank of Canada is currently expected to get to somewhere in the 3.5% range on the overnight rate by their last meeting of 2022. The Bank of Canada still have three announcement dates to go in 2022.

So, what does this mean for mortgages? Cathcart points out “the five-year fixed rate mortgages Canadians so love (at least until recently) have already priced most of that in. That’s good and bad. It’s good because it means five-year rates won’t jump by another 2% as the Bank of Canada does its thing over the remainder of 2022. However, it’s bad if you’re trying to negotiate a five-year mortgage rate compared to just a few months ago.”

The whole point of the rate increase is the hope of higher rates leading to a slowdown to more normal levels of sales activity and a flattening out of prices. That will take time and Cathcart goes on to say we still have supply shortages all over the place. This won’t change overnight. But we’ve gone from that being the defining feature of the market, to borrowing costs being the defining feature of the market in very short order.

Of course, those who currently have a variable rate mortgage felt the impact immediately with one homeowner telling CTV National News that his monthly payment rose by $300 a month, overnight. So, as we wait for the effects of the rate increase to hit the sales market CREA asks, what will the Bank of Canada do in 2023? According to them, we’ll all have to wait and see.

Having said all this, it is important to put things into perspective. In reality, a 5% mortgage interest rate is still historically super low compared to the rates of the 1980’s where it was north of 20%. We’ve been lucky and gotten used to low lending rates however this increase will not crush the market or outprice buyers and homes in Calgary remain some of the most affordable in Canadian urban centres. Visit me on Facebook and Google!