Interest rate hikes and their effects on Canadians

“Should I still move?” What the BoC’s interest rate hikes really mean for Canadian homebuyers

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"Should I still move?"

We've been thinking a lot about this since the Bank of Canada (BoC) recently increased its interest rate from 0.5% to 1%. And if you've been considering buying a home this year, you're probably asking yourself the same question.

As interest rates continue to climb (the next BoC interest rate announcement is coming up on June 1st), the amount of money you can afford to spend on a home generally goes down—because your monthly mortgage payments rise. And with two additional rate hikes expected this year, it's only natural to wonder where that leaves you. 

Is making a real estate move financially viable right now? When's the best time to buy or sell?

We tapped our team of housing experts to answer these questions, and more, below.

How do interest rate hikes affect homebuyers? 

Interest rate changes are one of the most constant realities of the Canadian real estate market. What is less predictable is whether the rates will go up or down. And while these changes (in either direction) affect buyers, we have some tips to help you navigate them.

Adjust your buying strategy to take advantage of the market 

Post-rate hike, the real estate environment is certainly not the same as it has been over the past few years (Canada has enjoyed a strong seller’s market since July of 2020). You may have perceived that, recently, almost every home on the market has been selling for hundreds of thousands of dollars above asking price. This trend may slow down as a result of recent market shifts, which means you may be able to compete, or at least entertain the idea of entering or moving within the market.

The interest rate increase doesn't have to derail your homebuying plans, thoughyou can simply adjust your strategy. Over time, the value of homes will almost always go up, so if you’re able to take leap into the cooling market, buy a new home right now, and live in it while its value appreciates (that is, you’re not planning to buy a new home in order to flip it and sell it in fairly short order), it’s an asset that will grow in the long run.

Take advantage of seasonality, less competition, and increased inventory

There are more homes for sale right now, which is good news for potential buyers. Consider taking advantage of the increase in available home listings available right now and into and in June, July, and August in Toronto, Vancouver, and beyond. 

If you’re a first-time homebuyer with savings who has been waiting patiently to enter the market, you’ve been planning to downsize, or you’re looking at home ownership as an investment, this may be your time to make a move.

Move with the times

If buying your dream home is your 2022 goal, shifts in the market shouldn’t stop you. But before moving forward, you should prepare both financially (and emotionally!) for the process. 

Having a solid financial plan that takes into account any surprises (i.e. new conditions on financing may be in the cards), along with the right tools and professional guidance to navigate the way forward, buying right now can still be a good option for you.

Are fixed-rate and variable-rate mortgages affected by the BoC interest rate hike?

Homebuyers often ask whether they should aim for a fixed-rate or variable-rate mortgage. A more pressing question for 2022 is: “Which is better right now?” 

Current variable-rate mortgage holders are immediately impacted by BoC interest rate hikes. Their monthly mortgage payments increase as a result, and that may force them to reevaluate any big purchases they planned for this year.

While the advantage of a variable rate is that Canadians pay less when interest rates are much lower (as they were in 2020 and 2021), they will pay more as interest rates climb.

In the short term, the good news falls squarely with current fixed-rate mortgage holders, as their rates remain constant and predictable even when the BoC rates increase. (Need a refresher on the pros and cons of fixed vs. variable mortgages? Read our mortgage cheat sheet here.)

If you’re comparison-shopping for a brand new mortgage, in the long-term, you may still find it best to opt for a variable-rate mortgage. The BoC increase means that—because you’re paying a premium already for the predictability of a fixed-rate mortgage—it just became more difficult to qualify for one, and could be more expensive as time goes by.

If I sell now, how can I guarantee I get a fair price for my home?

If you currently own a home, you may be worried about whether you’ll get the sale price you want now that the seller’s market is cooling down.

As the market changes, an increase in the number of homes for sale may lead to division of interest (more options for buyers = fewer offers on each home) which could reduce overall sale prices and make it more challenging to sell.

Consider this, though: regardless of rate hikes, it’s still possible for you to a) buy a new home; and b) get market value (or more!)  for your current one with Sale Assurance

With Properly’s Sale Assurance, you never have to worry about your home not selling, because on the rare occasion it doesn't get scooped up on the open market, we'll buy it ourselves. The best part: if we end up reselling it for more than we paid, 100% of the net profits go back to you.

In a balanced market, Sale Assurance is the peace of mind that comes with having a guaranteed sale price. By buying first, and selling later, customers are opting for control and confidence in the sale of their home, and avoiding the usual time and financial pressures of moving.

Is now a good time to buy?

The upward movement of interest rates of late shouldn’t prevent you from buying as intended this year. They should however prompt you to consider the most risk-averse, streamlined, and creative options at your disposal for when the right home comes along.

Assessing your current and future financial situation, considering mortgage types, and looking for ways to make the buying experience as stress-free as possible should be especially top of mind before you move onward, and upward.

*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 Homes Inc. 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, Sale Assurance, 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, 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.