Mortgage Rate Increase - How Does this Impact Real Estate?
July 13, 2017 | Posted by: Shayne Beeler
Mortgage Rate Increase – How Does this Impact Real Estate?
Quite often, we hear the words “rate increase” and we group all different types of mortgage terms into the same basket (variable and fixed rates). While the factors influencing both have some correlation in common, their direct influence is slightly different. Variable rates are impacted by the Bank of Canada’s “overnight” rate, which today was increased from 0.50% to 0.75%. Canadian Banks set their “Prime Rate” in response to these changes and as such, they all made the move to a 2.95% Prime Rate today (from 2.70%). Fixed rates, on the other hand, are influenced by Government of Canada Bond Yields. Where correlation between the two existed this time around, was in anticipation of the Bank of Canada’s rate announcement for July 12th. Over the last few weeks, we saw bond yields increase over 40bps representing a ~50% increase overall as the market was “pricing in” a future rate increase. This “pricing in” also is a by-product of rate increases signifying improving economic conditions.
So how will these increases (0.25% on variable rates and roughly 0.20% on fixed rates) impact the real estate market? In my opinion, no much, really. To put things into context, the fixed rate offerings available today are similar to where we were 6 months ago. So looking purely at rates, were rates 6 months ago creating head winds in the real estate market? Not really… In fact, I’d suggest individual real estate markets have many more factors at play impacting supply and demand than rates alone. After all, we’ve experienced booming markets at much higher rates and had slower markets at similar to slightly lower interest rates.
