Interest rate hike will only be negligible in some parts of Canada

by Neil Sharma on 19 Jan 2018
As expected, the Bank of Canada hiked the interest rate a quarter point to 1.25%—a seemingly superficial number depending on which part of the country you’re in.

Royal LePage sales agent Tom Storey says demand for housing in Canada’s three largest cities is so great that removing a handful of buyers—as the new mortgage rules and interest rate increase will do—will have a negligible impact. However, in cities like Edmonton and Calgary, that won’t be the case.

“They’re recovering markets trending back upwards,” he said. “This change in those types of markets will be harder to absorb because their housing supply is higher, so for most people looking to purchase in those regions, bringing what they can afford down will hurt them more. For markets already struggling, like St. John’s and Regina, this is going to affect them most, but that’s what happens with national decisions. These policymakers are making decisions based on cooling demand in the urban centres, but it affects everybody.”

The new mortgage lending rules are estimated to reduce purchasing power by 15-17% and that’s bad news for recovering markets, added Storey.

The interest rate hike itself will only account for roughly $12.50 for every $100,000 of mortgage, according to Storey. He added that it will not impact Toronto’s condo market in the least bit.

“The quarter-point increase we saw based on a fixed-term mortgage works out to about $12.50 per month on every $100,000 of mortgage,” said Storey. “It’s not that much, especially in Toronto where the inventory levels are so low; especially with condos, those types of markets won’t be affected by this. In the past six months, we’ve gone up a half-point based on the last two announcements, so that’s just doubling it. It’s basically $25 a month based on every $100,000 of mortgage.”

One market that emerged from 2017 relatively unscathed is Montreal, where demand is strong and government intervention was non-existent.

“Montreal’s a market that saw a lot of price increases in the last year,” said Storey. “They’re in the same category as Toronto and Vancouver, and still more affordable than Toronto and Vancouver, but prices went up significantly and outpaced Toronto and Vancouver. But that’s also because there was no government intervention. They tried to figure out how to curb demand instead of how to try to get more supply.”

Calgary sales agent David Pelletier of REMAX Real Estate (Central) says he’s mostly concerned about the impact of the new mortgage rules than the variable rate increase.

“I’m not as concerned about interest rate hike as I am about the general concern with the  new labour law, tax laws and new mortgage rules, and how those three elements combined are perceived to potentially impact the market,” he said. “I think there’s a hesitancy among buyers and sellers, they’re both proceeding cautiously and it will take two or three months for things to flush through the system and for people to realize what, if any, impact they’ll have on market.”

Related stories:
2018 expected to be big year in the GTA
BoC’s Poloz indicates minimal worry about expectation for low inflation

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