The Bank of Canada raised its overnight rate by 0.50 points on October.26th, 2022.
What does this mean?
It means the rate at which the Bank of Canada borrows money from the government has increased; therefore, the rate at which YOU can borrow money has increased as well.
The new prime rate sits at 5.95%.
I am on a fixed-rate mortgage. Should I be concerned?
No. This rate increase will NOT affect anybody who is currently locked into a fixed-rate mortgage. Something you SHOULD be aware of though is that the recent rate increases will likely have an effect on you when you go to renew your mortgage so be sure to plan accordingly. If you need a mortgage professional you can trust, let me know and I will refer you to the best of the best!I am on a variable-rate mortgage. Will this affect me?
Yes. Being that you are in a mortgage agreement with variability, you will likely feel the effects of this increase. The best advice I can give you is to never over-extend yourself, stay in close contact with a professional like myself, as well as a mortgage broker to guide you through these times. How much you owe on your mortgage and what your rate was sitting at will ultimately vary what your adjusted payments will become.
What effects will this have on the real estate market?
What we have seen since things have been calming down as of March 2022 is that the rising interest rates affected the home values on the market. Data suggests that for every 1.0 base point increase (approximately), home prices have dropped around 10% in value in our area. This is not a guaranteed rule, but simply what the data suggests. The reason for this is because people who could have afforded Home #1 originally can no longer afford it at that price with the rate increase. They will need to offer less to a Seller to achieve financing. This generally has meant these Buyers moved on to Home #2 or #3 instead.
What should Sellers do?
It is important as a Seller to remain realistic. Yes, our goal is to get you as much money as reasonably possible for the sale of your home, but more importantly our goal is to SELL IT. You are ready to make moves and change things up. You are due for your third child and need another bedroom. We need to make sure you can accomplish your goals. Understand that some concessions may need to be made in order to achieve this.
What should Buyers do?
Buyers need to remain diligent. Stay in touch with a Realtor like myself and have a watchdog on the market. You also have your own goals for getting into the market. Maybe you're just starting out and you and your new spouse are excited to call a place home. You may have limited funding available. You should also stay realistic. Do not over-extend yourself. Buy what you need and hold back on some of the luxuries if necessary. Make an offer that is fair for all parties and something you can safely afford. Buying real estate and holding it is always a win though. Everyone experiences equity growth over time so getting into the market when you can is ALWAYS the best option.
The main thing to remember here is there is no reason to panic. This is simply economics doing its thing after a long and interesting few years of instability. Real Estate is necessary on so many levels. Whether you want to build a family, create a home to make memories, house your parents, help your kids, or invest in a small rental portfolio, there are many great reasons to buy into a market.
Don't be nervous.
Pair up with a relatable, every-day, knowledgeable, and ethical agent like myself to get you there!
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