Bank of Canada raise the interest rates
After more than a year at a record low level, Bank of Canada Governor Mark Carney raised the benchmark interest rate for the first time since 2007 by one-quarter percentage point to 0.5% this morning. Bank of Canada is the first in the Group of Seven to do so since the financial crisis and recession began in 2008.
In a statement Carney emphasized that the increase should not be interpreted as just the first of more to come.
“This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,” the central bank said. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”
How will this affect the housing market and home sales? Well, this does mean the variable rate will increase slightly. Especially for investment properties, it’s often difficult to make the numbers work based on rent received and cost of purchasing. In most cases property investors want the rent to cover the mortgage payments, property tax and strata fees. Higher interest rates will increase the costs for investors and this will put downward pressure on prices or upward pressure on tenant tent.
For home buyers planning to purchase as their primary residence it’s the same story, increased costs of home ownership when borrowing money. If someone is already have a hard time affording to their monthly payments this will slightly increase their costs.
Stepping back and taking a hard look at the situation, we’ve been spoiled with record low interest rates. Over the last number of years and especially in the last year and a half. I think we shouldn’t be too surprised seeing the rates going up slightly.
Although the lenders have not announced it yet, they in all likelihood will soon be following suit in the coming days by increasing their Prime lending rate also by .25% to 2.5%. For those of you on a variable rate please be advised that this means that your interest rate will be increasing in the near future.
As residential Realtors, Jacob and Jacky are always there to answer your questions about the Vancouver housing market. Contact their team if you’re planning on buying or selling your home!
