The Bank of Canada (BoC) raised the overnight lending rate again. The most recent hike of 1% was the most significant interest rate hike in more than 20 years. We have to go back to 1998 to capture this significant increase. We have subsequently seen a rise of .75%
Prime now sits at 4.7%.
Keep in mind that this affects those who currently have a variable rate, are looking to obtain a mortgage, and are looking to renew their mortgage. The rate increases do not impact those homeowners with a fixed mortgage rate until their renewal date.
How will the BoC interest rate hikes affect Canmore?
As much as we have a hard time predicting the future of real estate in Canmore, we can act under certain assumptions based on experience. If we split the Canmore real estate market into two segments, we can better answer how the lending rate increases will impact the marketplace. (be sure to read the “key takeaway):
1. First-time buyers and real estate investors
First-time buyers and investors are typically more rate-sensitive. The higher the rate, the lower the mortgage financing they can achieve. Those currently pre-approved for a mortgage with a locked-in rate will move quickly to secure a home before the current rate expiry. Investors are looking to cash-flow their investment properties. One major factor with cash-flow predictions is the costs of borrowing. The increase in interest rates, similar to first-time buyers, will mean that the investor can afford less space.
We can call first-time buyers and investors: entry-level real estate purchasers. They typically purchase smaller homes and condos in Canmore. Because this market segment is more rate-sensitive, it is likely that in the months to come, this market segment will slow down in Canmore. We cannot be sure, but we see this happen in major urban markets. (Note that most wealth in Canada comes from urban industry, that money then flows into recreational areas like Canmore.) There is always a knock-on effect; it’s just a question of when and to what degree of impact.
2. Luxury homes
Luxury home buyers in Canmore are over $1.5 million. These buyers are less rate sensitive. Interestingly, many luxury buyers do not use financing to purchase their homes. For this very reason, we expect that the high-end Canmore real estate market will continue to transact in a healthy manner. Will the buyer let off the gas in this snap bracket in Canmore? Likely, but not in the same way first-time buyers find in their housing market.
➤ For more information on Canmore real estate, check out:
- Canmore Neighbourhood Guide
- Investing In Canmore Real Estate
- Why You Should Buy A Vacation Home In Canmore
- Buying An Investment Condo In Canmore
- Looking To Buy In Canmore?
Key Takeaway:
This is important to remember: Canada’s lending rates remain very low. This fact and story are not being portrayed in our media. Historically speaking, we are in good shape. We also don’t expect the higher rates to last forever; this is an attempt to cool off the incredibly high inflationary rates. Once the government can manage inflation, we expect to see the rates stabilize.
Real estate is an incredible wealth generator for those who commit, stick to the process, and enjoy your space for years to come. Real estate is a market. There can be bumps along the way, and it’s a matter of being in it for the long run.