On its own, 0.25 seems like a small number but when applied to a mortgage, this fraction is enough cause terror in the hearts of Canadian homeowners. The latest increase in benchmark interest rates marks the 10th since March 2022 and the first time that rates have reached 5% since 2001.
The Bank of Canada rate increase does not only apply to mortgages but notes a matching increase for major lenders all across the country, driving up the cost of personal loans, credit cards and other financing options. All Canadians are facing off against the rising costs of inflation, particularly in the grocery stores. With all of the numbers laid out the question that all Winnipeggers are asking is: what happens now?
What Does An Increased Interest Rate Mean For Homeowners?
Few homeowners are able to purchase homes outright without the help of a mortgage. This means applying for the biggest investment — and largest debt — of your life. During a mortgage application there are plenty of decision to make, ranging from which lenders to work with, the length of a mortgage and most importantly, variable or fixed contracts.
If you have chosen a fixed mortgage, chances are that you are not experiencing the pinch of inflated payments on home loans. While the rising costs of goods and services may still be difficult to manage, it doesn’t compare to the strain of a variable rate mortgage.
During an interest rate hike, carrying costs increase. Carrying costs are the costs of owning and maintaining a property. A 1% increase can send the monthly cost of carrying a mortgage skyrocketing. In some parts of the country, monthly payments have nearly doubled in the last 15-months. The impact that rising interest rates will have on your monthly payments is directly related to the remaining cost of your mortgage.
Since the July 12, 2023, increase, nearly half of all Canadians are less than $200.00 away from being unable to pay their bills. As central banks raise interest rates, more and more Manitobans are contemplating selling their homes or downsizing their living space. As an increasing number of property owners decide to list their homes in order to avoid the high costs of their mortgage, it will have a direct impact on the local housing market.
How Do Higher Interest Rates Impact the Winnipeg Housing Market?
Every year, experts publish lists of predictions for the upcoming season. These predictions focus on economic growth, expect inflation and offer up insights into what Canadians can expect in the upcoming year. During the first quarter of 2023 it became obvious that we can’t rely on these predictions. Instead of going down, the cost of borrowing has seen steady increase and there is no guarantee that it won’t continue. In fact, key interest rates are not expected to regulate until the middle of 2025 — so what do we do in the meantime?
As the cost of borrowing increases, Canadians are becoming concerned with how best to navigate managing their housing portfolios. Higher interest rates reduce the purchasing power of potential buyers. If your budget is $300,000.00 under the current interest rates, it is important to stress test for a higher amount and higher rates in mind. This will reduce how far budgets will stretch and may be enough to discourage potential buyers from committing to a new house. This causes a drop in potential buyers and a surplus of available properties.
As a buyer, this can be a great opportunity, even with the higher levels of stress-testing. For those Manitobans that are looking to break into the real estate market, this could potentially be an ideal time. By entering the market when the rate is high and choosing a variable mortgage, potential buyers have many properties to choose from, lower competition and rates have nowhere to go but down.
As recently as 2022 the housing market in Winnipeg and surrounding area was incredibly competitive with desirable properties often selling over-asking. Now, it is a buyer’s market, as long as you are ready for rate shifts and are prepared to contend with the possibility of an increased monthly cost of living.
Working with an experienced realtor can help navigate the advantages and pitfalls of the shifting interest rates. Dino Stepic is equipped with years of industry experience and access to top resources designed to get the best deal for buyers and sellers alike. Whether you are looking to get top dollar for your home or are hunting for the best possible deal as a first-time buyer, Dino works alongside clients to achieve their goals, while keeping stress to a minimum.