For a while now experts have predicted that interest rates would not increase until at least 2023. The main driver of this thought is that the government wanted to stimulate the economy, making it cheap to borrow money and spend it.
This has had an enormous impact on home prices, as buyers have been out in droves trying to cash in on these cheap borrowing rates. As a result, this increase in demand has made for tough competition among buyers, driving the prices of homes up (this is but one factor of the increased home prices – lack of supply, and the desire for more space amid Covid being the others).
This week the Bank of Canada left its benchmark interest rate unchanged at 0.25 per cent. No surprise there. What has many talking though is the resiliency of our economy. The Bank of Canada updated its growth projection to 6.5 per cent this year and 3.75 per cent next year. What does that mean? Basically the economy is doing better than projected. Which is great news! Coupled with these changes to our economic forecast, however, is that the Bank also pulled forward its call on when economic slack will be absorbed from sometime in 2023 to the second half of 2022”. Of course this is great news for the economy, but it also means that interest rates will be headed higher sooner than predicted. Experts are now saying that we will no longer be waiting until 2023 to see higher rates, but actually sometime in the second half of 2022.
What does this mean for homeowners and buyers?
Essentially, borrower beware – borrowing money is about to get more expensive sooner rather than later. When you take away the guarantee that interest rates won’t go up for at least two years, it is reasonable to expect that fixed mortgage rates will start to creep up. And, if you’re in a variable rate mortgage now might be a good time to talk to your mortgage broker to see if its a good time to lock into a fixed rate. As for the housing market, which has been so hot mainly buoyed by the fact that borrowing has been cheap and that it would stay cheap until 2023, we might start to see buyers not willing to pay these astronomical prices because they simply cannot afford them.
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