“For the past two years, we have had free money,” said Nasma Ali, a Toronto-based mortgage broker and founder of a real estate agency called One Group.
But now that interest rates are rising, with Bank of Canada raises key interest rate on Wednesday at half a percentage point to 1 percent, Ali says paying these higher costs will be “a difficult pill” for some prospective home buyers
“Now, people will think twice,” he told CBC News.
According to the Toronto Regional Real Estate Council, average prices in the greater Toronto area fell from $ 1.33 million in February to $ 1.29 million in March, offsetting the seasonal trend. Ali says she has seen market prices fall and fewer home offers.
Nasma Ali, a mortgage broker in Toronto and founder of a real estate agency called One Group, says the housing market is cooling due to rising interest rates. (Submitted by Nasma Ali)
However, as banks raise interest rates on variable mortgages and credit lines, discouraging some prospective home buyers from entering the market, Ali and other housing experts are wondering if the result will last.
The reference rate hike is the largest in nearly two decades – an effort curbs soaring inflation. But rates are still lower than pre-pandemic levels. The bank reduced its interest rate to just over zero in March 2020 after the first blow of COVID-19.
“The latest increase will have a calming effect,” said James Laird, president of Canwise Financial and co-founder of Ratehub.ca, a website that compares interest rates for consumers.
But Laird says it will not be the only factor influencing the market.
“We have a lot of young Canadians coming to the country. They are looking to buy houses. There is still a supply problem.”
However, Laird and Ali both warn that house prices may fall, but buyers will pay more interest on their monthly mortgage payments.
Ali says this may have more of an impact on first time home buyers.
‘All these clothes’
Dustan Woodhouse, president of Mortgage Architects, a Vancouver-based stockbroking company, says the announcement does not affect the majority of people who already have homes, as most of them have fixed-rate mortgages.
“All these things out there for what they all mean – they don’t really mean much,” he said.
Mortgage expert Dustan Woodhouse does not believe that raising interest rates will affect homebuyers who can pass the stress test. (Submitted by Dustan Woodhouse)
Woodhouse does not believe that raising interest rates will prevent most home buyers from entering the market for the first time if they can afford it from the start.
“They are not a level playing field,” he said. “But the reality is – although single-family homes have become the realm of the upper middle class, there are enough people in this category to offer housing for the market that the market is stable and strong.”
In fact, for those who can pass the mortgage stress test and make enough money, a higher interest rate will not stop them from making an offer, says Woodhouse.
But he says he can limit their spending on other things.
“It probably means a shorter queue outside a restaurant like The Keg on Friday night. They’re not going out to dinner for $ 150 three times a month. Maybe just twice. Maybe just once.”