Higher interest rate to cool market?

by Jordan Maxwell03 Jul 2015
The heat may be getting to some as a scorching real estate market has agents suggesting a slight rise in interest rates could effectively cool the market at a time when foreign investors are being blamed. 

“We need to get over the notion that a housing crash is imminent,” Mark McLean, a real estate agent with Bosley Real Estate Group and new president at the Toronto Real Estate Board, told REP. “Lots of people seem to forget what is was like 15 years ago when interest rates were as high as 18 per cent and people still bought houses. It didn’t deter them; they just found new ways to do it.

“I think there are safeguards in place in mortgages to prevent a U.S style crash.”

His comments come as many blame foreign investors for elevating Canadian house prices to levels unseen and also follow a CIBC report last week that echoed similar sentiments as Benjamin Tal, deputy chief economist for CIBC.

“The issue of foreign investors is largely misunderstood,” he writes in the bank’s latest economic insights report, The Many Faces of the Housing Market, penned with fellow economist, Andrew Grantham. “The share of those investors in total activity is much smaller than perceived."

In the past couple months, foreign investment has taken a lot of the blame for elevating Canadian house prices and Kenny Wong, an agent with Tradeworld Realty Inc. believes that it’s an issue that has to be looked at along with the rate of immigration and how that impacts Canadian real estate.

“The current low interest rate policy is unrealistic,” he told REP. “The rate are far too low, even below inflation. I am hoping with that raising the interest rate, it may cool off this red hot market a bit. The whole question here is the flow of immigrations, which will be continuous.”

What’s more, activity in Toronto and Vancouver has called the Bank of Canada to raise the rates to artificially cool the market, but McLean believes the market will cool naturally.

“Strong demand from international migrants and young millennials, an influx of foreign wealth, and low mortgage rates are driving the two markets,” as quoted in a separate report from BMO senior economist Sal Guatieri.

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