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Bank Of Canada Raises Interest Rates To 0.5%

The hikes are here; Bank Of Canada raises target rate to 0.5%, but what does that mean? We break down the info and what it means for homeowners, buyers and sellers. 

For about two years, the interest rates in Canada have been at all-time low levels as the Bank of Canada attempted to help the economy weather the effects of the COVID-19 pandemic. Though low rates were enjoyed by many, it has been widely understood that they would not be here to stay. Now, amid the highest inflation rates in three decades, the Bank of Canada has finally increased its key interest rate to 0.5% with more hikes expected to come this year.

Previously, the key rate had been held at just 0.25% since the pandemic first broke out in early 2020. This current hike now marks the first increase in interest rates since 2018. Forecasts have predicted that interest rates will continue to increase by a few percentage points through to the end of this year.

Beyond inflation, interest rate increases can have a large effect on the housing market. The Bank of Canada interest rate is a major influence on how banks set their prime rates, which in turn, impact the cost of borrowing and will lead to a growth in variable mortgage interest rates.

Many have already chosen to lock in their variable-rate mortgages with hopes to avoid rising payments as rates go up.

How will the Real Estate Market react?
There are also hopes that rising interest rates can help cool off the incredibly hot real estate markets seen across the country. With rates so low, many were able to afford to borrow much more which had some influence on the rising prices seen in the last two years. With increased interest rates, people will be able to borrow less and some will not be able to afford mortgages at all. The combined effect is fewer buyers in the market with less money to spend. 

Buyers And Sellers
However, if you are looking to buy this year, don’t get your hopes up for significantly decreased home prices. As mentioned before, the effects of gradual rate increases will take a while to be truly felt and there are many other factors driving the real estate market beyond just low-interest rates – particularly lack of available inventory.

If you’re looking to buy right now, although rates have gone up, with more hikes on the horizon, right now it’s still possible to save on future increases and maximize your buying power. 

If you’re thinking of selling your home, it’s still a great time to list. We think a more important factor on the market than rate hikes is the record lows of inventory. There just isn’t enough inventory for the amount of buyers looking in our communities. 

Do you have concerns or questions about what this means for you and your real estate goals? Let us know, we’re here help and will be with you every step of the way.

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