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What the Bank of Canada’s latest interest rate hike means for B.C.’s housing market

Click to play video: 'Rising interest rates hit home owners and buyers harder' Rising interest rates hit home owners and buyers harder
Nowhere does rising interest rates hit harder than the housing market. Aaron McArthur reports on how much more buying or owning a home will be and what it might do to the market – Jul 13, 2022

With interest rates in Canada seeing a hefty bump Wednesday, industry insiders are warning of a potentially bumpy road ahead for those in B.C.’s housing market.

The Bank of Canada hiked its key overnight rate by a surprise full point on Wednesday, in a bid to curb surging inflation. It was the fourth consecutive rate hike, and left the key rate at 2.5 per cent — up from just 0.25 per cent to start the year.

Read more: Bank of Canada hikes key interest rate by full percentage point in surprise move

“It’s going to go up again, potentially, and then again after that,” Vancouver mortgage broker Sherlock Yam told Global News.

“Even though it’s still relatively low, we should be prepared that this isn’t going to be the end of it.”

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Record-low interest rates during the COVID-19 pandemic saw large numbers of British Columbians enter the housing market, and for many, variable mortgage rates meant lower payments and flexibility.

Click to play video: 'Bank of Canada raise interest rates more than expected' Bank of Canada raise interest rates more than expected
Bank of Canada raise interest rates more than expected – Jul 13, 2022

Yam said as much as 95 per cent of his new clients over the last two years signed up for variable rates.

Those variable rates have now become a double-edged sword, leading to increased monthly payments.

The average mortgage in Canada is about $711,000 on a 25-year amortization with 15 per cent down, until Wednesday that would have left owners paying $2,845 per month.

The latest hike would see that payment climb by about $325 per month.

Read more: ‘A big shock’: Canadians feeling squeezed by Bank of Canada’s interest rate hikes

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“They should start thinking about locking in the rates or just budgeting for higher payments,” Yan said, recommending homeowners talk to their bank or mortgage specialist.

“Find out what that number is, find out what that monthly payment is, because it’s going to be bigger than what you are currently paying — but if you are comfortable with that and are risk adverse, then it’s a good option.”

Click to play video: 'Higher interest rates lead to housing slowdown' Higher interest rates lead to housing slowdown
Higher interest rates lead to housing slowdown – Jul 13, 2022

Rising rates could also have an effect on B.C.’s market as a whole, which has already begun to cool after years of white-hot activity.

The B.C. Real Estate Association reported Tuesday that June sales had dropped 35.7 per cent year-over-year, though the average price still crept up 4.6 per cent.

Niko Lambrinoudis, broker-owner with TRG Realty, said the changes are visible on the ground with more listings on the market and staying longer and prices adjusting downward.

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Read more: Inflation calculator: How do rising prices affect your personal finances?

“Now we’re seeing the buyers take their time, they’re going to go out maybe a weekend maybe two weekends maybe three, see which one they want to go buy — which is kind of like it used to be, right?” he said.  “What was going on for the longest time isn’t really the norm in real estate.”

He said the new rates are also changing the equation for buyers due to Canada’s mortgage stress test.

Would-be buyers, Lambrinoudis said, will need to factor in higher monthly payments while qualifying for more. Ottawa, he suggested, may want to take another look at the program.

“It’s roughly going to be around six per cent, maybe a little bit higher, that’s a lot to ask any buyer for to qualify when we’ve been used to three, four per cent,” he said.

With inflation in Canada currently running at a 39-year high, the rough road for the housing market is likely far from over.

In a note Wednesday, CIBC senior economist Karyne Charbonneau said Wednesday’s Bank of Canada’s key rate hike suggested further hikes to a peak of 3.25 per cent is now more likely.

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