Economists expect a hot springs real estate market
The Bank of Canada’s decision to keep interest rates low on Wednesday sets the stage for another hot spring housing market as homebuyers rush ahead of a rate hike later this year.
After nearly two years of historically low interest rates, which have helped Canadian home prices grow at their fastest pace on record, economists and mortgage experts are expecting a rate hike as early as March that could finally slow down the overheated real estate market by increasing the cost of borrowing.
Meanwhile, homebuyers will likely be motivated to take advantage of low interest rates before it’s too late.
“People will want to get into the market to make sure they’re there before the window closes,” said Benjamin Tal, deputy chief economist at CIBC World Markets.
Tal expects the average number of home sales to rise 20% over the next few months, from around 50,000 monthly sales to 60,000.
“We could see relatively strong activity in the spring until the market slows down in the second half,” he said.
Already, real estate agents were expecting a warmer-than-usual spring market. According to Royal LePage, more than half of Canadian real estate markets – 61% – saw a quarterly increase of 3% or more during the last quarter of 2021, a period when the market is generally at its slowest pace.
According to the Canadian Real Estate Association, the average home price jumped 26.6% in December to $811,700 from a year earlier.
Homebuyers have shown growing interest in suburban homes and rural areas, pushing prices in cities like Cambridge, Barrie and Burlington up double digits.
“The spring market is hotter than I’ve ever seen it, and people are going to keep rushing into the market hoping they won’t be the last buyer before prices drop,” Daniel said. Foch, broker at Foch Family. Real estate.
“Now it’s a race.”
The Bank of Canada’s decision to hold interest rates at 0.25% on Wednesday came with a clear message that Canadians can expect rates to rise later this year as Central bankers are looking to rein in inflation, which hit 4.8% in December from a year earlier. .
Some economists expect the first rate hike to come in March, when the central bank hopes the Omicron variant of COVID-19 will have completed its Canadian tour, followed by four to six subsequent hikes over the following 12 months.
This would lead to more than one percentage point increase in the central bank rate, driving up the cost of mortgages.
With several rate hikes, the housing market could finally start to calm down as buyers find it increasingly difficult to secure affordable mortgages, Tal said.
“If the bank moves six times, it will generate activity in the market that will not be positive. Sales will drop, some investors may exit the market,” he said.
Throughout the pandemic, many homebuyers have opted to keep monthly mortgage payments as low as possible by taking out variable rate mortgages — loans that offer the lowest initial interest rates but automatically increase with time. central bank borrowing cost. So if the bank raises rates significantly, homeowners will have a lot more to pay on their mortgages.
Until these increases are announced, however, Canadians can expect real estate valuations to soar.
“The early stages of this spring market are going to be extremely strong, we’re sure,” said Robert Kavcic, economist at BMO Capital Markets.
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