Raising The Interest In Housing

The days of record low interest rates are numbered. The Bank of Canada has upped the ante and said interest rate rises could be coming as soon as April next year. So, what will this do to the soaring house prices we’ve seen here in Alberta and across the country? At least one expert believes the Canadian housing market is in for a “soft landing.”

Inflation is now at its highest level in more than a decade, pushed up largely by supply bottlenecks of goods as the global economy restarts. The Bank of Canada aims to keep inflation long term at 2% and is considering raising interest rates next year to help cool the economy.

Higher interest rates mean higher mortgage rates. The major banks are forecasting what they believe will happen next. RBC thinks Canada can expect three interest rate rises in 2022, each at 0.25%. One of RBC’s senior economists, Robert Hogue believes this will cool the housing market but not crash it.

October set a new record for home sales in Calgary with more than 2,000 sales recorded on MLS. It’s a similar picture across the country. Home sales in all Canadian major cities continued to rise according to Canadian Real Estate Association figures. Robert Hogue says, “fixed mortgage rates are already rising”. While October’s figures show there’s no cooling yet, Hogue believes that’s because home “buyers are accelerating their purchase decisions and once that runs its cause, probably in a few months, we’ll see the market start to cool.” He says buyers are moving quickly to lock in guaranteed mortgage rates.

It’s a view echoed by Calgary Real Estate Board Chief Economist Anne-Marie Leduc who says, “much of the persistent strength is likely related to improving confidence in future economic prospects, as well as a sense of urgency among consumers to take advantage of the low-lending-rate environment.”

The possibility of higher rates “has been a risk all along and now we’re seeing the reality” says RBC Economist Robert Hogue. The lack of supply of homes for sale will keep prices high in his view. He believes housing markets will remain strong and are in for more “of a soft landing or flattening of prices next year.” The biggest casualty will be affordability. There will be more pressure with higher mortgage rates and high prices. “It will make things more difficult for some buyers, especially those who were hoping to get into the market by their fingernails. It might just take them a little longer.”

Home prices in Alberta continued to rise in October pushing up the average price of a home. Prices here remain significantly lower than many other areas of the country. In Hogue’s view this is the “silver lining” for the province. With prices picking up the market is a little healthier and affordability here is much more manageable.