On June 1st, the BOC announced another interest rate hike. Here’s what it means for you

Properly is a different kind of real estate brokerage. It's the stress-free, full-service, modern way to move.
Learn more

On June 1, 2022, the Bank of Canada (BoC) raised its benchmark interest rate from 1% to 1.5%. It's the third rate hike in three months—and according to industry experts, additional increases are on the way.

The last increase was in April, when the BoC upped its overnight rate from 0.5% to 1%. Since then, we've been tracking the impact of this increase on the housing market—and more specifically, how it's affecting Canadian mortgage rates and the decisions home buyers and sellers are making.

Since all mortgage lenders base their own interest rates on the BoC benchmark, the past three increases (and any future hikes) directly impact how much you can afford to spend on a home. Because as the benchmark rate goes up, so does each lender's.

TL;DR: Here’s what the June 1st rate hike may mean for real estate right now:

  • With a potential increase in inventory and decrease in competition, buyers may be at an advantage.
  • What about sellers? Being more conservative with home estimates could be even more important right now.
  • We should all be giving our choice about fixed-rate vs. variable-rate mortgages a second thought.
  • For all involved, there are a few key things to be optimistic about in this dynamic market.

Why the hike to 1.5%?

The BoC’s interest rate increase is meant to combat growing economic inflation. 

In the long term, the move is intended to promote greater affordability for Canadians—and it’s just the first of many changes to come. 

In fact, we can expect more news from the Bank of Canada on interest rates on July 13th, which is also when its Monetary Policy Report is published. (The report will provide more context on the BoC’s broader outlook for the Canadian economy and share guidance on the direction of rates for the rest of the year.)

But what does this recent rate hike mean for you right now? 

We asked our team of internal experts, Pricing Manager Arieh Dales, and Muhammad Rashid, General Manager of Mortgages, to help us understand how the June 1st rate hike could affect buyers and sellers alike. 

What the real estate experts are saying about the June interest rate announcement

Q: How does the rate hike affect the real estate market?

We could see a ‘correction’ in housing prices

“As expected, we’re seeing a 50 basis-point increase in mortgage rates, which is pretty significant all at once. This likely results in tens of thousands—if not hundreds of thousands—of dollars in reduced buying power, which has to be priced into the market,” says Dales.

Canadians may have to adjust the type of home they’re looking to buy

Dales adds: “With higher rates, many buyers will look to take on less debt by purchasing less expensive properties. Some will simply adjust the home type they’re looking to purchase (e.g. they may look for a condo instead of a townhome) in order to enter the housing market. This is how the rate changes will be priced in on the demand side.”

“On the supply side, sellers may have to take further discounts on their homes as a way to compensate for the rate changes (i.e. a townhome may now be worth less than it was before). This would allow buyers to shop for the same home type they initially intended to purchase. Both the supply and demand levers are likely to be at play, but it is unclear who will feel the impacts of the rate hike more: buyers or sellers.”

Q: What does the rate hike mean for future buyers?

Buyers might now be at an advantage

According to Dales, “future buyers (in particular first-time homebuyers) could find themselves in a more advantageous position following the rate increase. Some investors may look to sell their investment units as the cost of borrowing goes up—and starter condos could see prices decline with rising inventory.”

“It is also likely that the trend of Greater Toronto Area and Fraser Valley home prices dropping faster than prices in the downtown cores will continue, meaning the barrier to entry for first-time buyers may continue to fall.”

Mortgages will be impacted (yet again)

Mortgage expert Muhammad Rashid suggests keeping a closer eye on mortgage qualification requirements following the latest rate increase. 

“The rate hike will likely have a direct impact on qualification for both fixed and variable types of mortgage rates now. Previously, you could maximize your qualification and be unaffected by the rate hikes if you opted for a variable rate, since you were being qualified at the stress test rate of 5.25%.”

“The June 1st hike put some variable rates above the 5.25% stress test rate (for example, a 3.3% contract variable rate must be qualified at 5.3% instead of 5.25% now), meaning customers’ purchasing power will be impacted,” he adds. “The hike also means buyers will see more affordable opportunities popping up on the market.”

Need more information on the mortgage stress test? Check out our cheat sheet here.

Q: What impact does the rate hike have on future sellers?

Be conservative when it comes to your home estimate

Rashid encourages thinking even more strategically about pricing your home for sale right now. “With more homes hitting the market, there will continue to be downward pressure on pricing. Use conservative estimates when determining what your home will sell for and how those funds will be used towards your next property,” he says. 

“The good thing is that it's relative, so while your own home price may go down, your prospective purchase should adjust accordingly.”

Q: What can we be optimistic about amidst these market changes?

In a recent Q&A, Dales noted that there are still things buyers and sellers can be optimistic about amid market changes like this one:

  • Unemployment is at its lowest point since the 1970s. This means more people can save money and enter the housing market.
  • Rental inventory is very low relative to the last two years. This is usually an indicator for future home prices because it makes investment more attractive (i.e. it increases demand).
  • Canada has high immigration targets. Set to welcome 1.3 million immigrants over the next few years, Canada will likely see a massive increase in housing demand, particularly in Toronto and Vancouver.

Rashid agrees there is much to be optimistic about in future, adding: “The housing market is still moving in a positive trend. The pricing adjustments make real estate relatively more affordable, giving buyers access to more properties within their price range.

Q: But what does this mean for you—whether you’re a buyer or a seller—right now? 

Let’s break down 4 key things to keep in mind when it comes to navigating the real estate market in a time of dynamic change.

Revisit your mortgage options

If you’re considering buying a home in 2022, you should be aware of your mortgage options, and what these options mean for homeowners. Need a recap? Read our breakdown of fixed-rate vs. variable-rate mortgages here. 

For current variable-rate mortgage holders, the rate hike will increase monthly payment amounts. For current fixed-rate mortgage holders, the rate increase is less impactful news, as payments remain constant and predictable. You may find it easier right now to qualify for the loan you need using a variable rate. 

Fixed-rate mortgages may now be harder to attain because of the premium associated with predictability. This means a fixed-rate can still be more expensive in the long run, depending on future changes in interest rates. 

Adjust your buying strategy to take advantage of the market

Since the BoC’s rate increase in April, the market has been slowing down with less homes selling above ask.

If you’re a buyer, this means you may be better able to cowampete when bidding on a home—if you adjust your strategy. In the long run, real estate values almost always go up. 

So, if you are willing to buy a home right now and live in it for a while (meaning you aren’t planning on flipping your home for quick sale), you can benefit from the increase in your home’s value. Over time, this value increase can offset the cost of higher interest rates.

Take advantage of seasonality, less competition, and increased inventory

Right now, there are more homes available for sale than there have been in recent months. This is good news for potential buyers, since more inventory means less competition.

Consider taking advantage of this increase in inventory in the coming months, both in Toronto and Vancouver. If you’ve been patiently waiting to enter the market, you’ve been planning to downsize, or you’re looking at home ownership as a long-term investment, this may be the time to make a move.

Seek out professional advice

If you’re thinking about buying or selling (or both) this year and are looking for more advice on how to navigate upcoming market changes, Properly’s housing experts can help. Get an idea of what your current home is worth, and schedule a call with our team to better help you navigate the recent moves within the market.

Is now a good time to buy?

Whatever decision you make, you always want to: be as informed as possible, know your financial situation inside and out, and consult a trusted advisor - this will only serve to help you move forward with confidence.

*DISCLAIMER: This article is provided for informational purposes only. It is not an exhaustive review of this topic. The content is not financial or investment advice. No professional relationship of any kind is formed between you and Properly, Properly Brokerage, or Properly Homes. While we have obtained or compiled this information from sources we believe to be reliable, we cannot and do not guarantee its accuracy. We recommend that you consult a trusted professional before taking any action related to this information. Properly is a tech-enabled real estate brokerage that is transforming the home buying and selling experience with AI-powered home valuations and a modern streamlined service. We recommend that you compare and contrast your options, read the fine print, and conduct detailed research into any real estate, loan, and/or investment provider before using their services.*
Properly is a Canadian tech-enabled real estate brokerage transforming the home buying and selling experience as the only service in Canada that helps homeowners to buy before they sell.