07/15/2022
With all the talk about rising interest rates, we thought we should give some perspective.
Bank of Canada just increased their overnight lending rate by an unprecedented (well since the 90's) 100 basis points or 1%. Here are our thoughts:
· The sky is not falling! This rate hike, while higher than the anticipated 0.75% increase, is not coming out of left field.
· The government appears to be "front-loading" their interest rate hike schedule. It’s very unlikely that we will see another 1% hike at the next announcement. We are likely to return to a world of 25 or 50 basis point increases. We are predicting rates will rise another 0.5%-1.0% and then settle.
· We are unlikely to see mass defaults or foreclosures in Canada. All mortgages are qualified (stress tested) at a rate 2% higher than the rate at the time of possession. This means the ability to pay a higher monthly mortgage payment is baked into all mortgages in Canada.
· Calgary is unlikely to see the same price declines as the major markets of Toronto and Vancouver for 2 reasons:
o We didn’t see price increases to the same extent as those markets, and our prices are still relatively reasonable
o Net migration to Calgary, and Alberta from other less affordable provinces is likely to keep our market in plateau
Half the calls we received yesterday were regarding the rate increase, but surprisingly, the other half were new clients looking to get into the market. The sentiment among some buyers is that the increased rate environment will take some people out of the market, thus making it easier for them to win offers without getting into a bidding war.
If you have any questions, please reach out to your favourite Advanced Mortgage agent!
