Calgary homeowners and prospective buyers are expected to feel another increase to the benchmark interest rate by the Bank of Canada, the tenth such increase in the last year and half.
The central bank said the goal is reduce inflation to two per cent, which is expected by 2025. The current inflation rate sits around 3.4 per cent following a peak of 8.2 per cent in June 2022.
Wednesday’s increase brings the interest rate to five per cent, with the 0.25 per cent increase representing the equivalent to an extra $15 per month per $100,000 borrowed, according to Rates.ca mortgage expert Victor Tran.
“Doesn’t seem like a whole lot, $15 a month extra for every $100,000 borrowed,” Tran said. “But for some people it can be quite, quite challenging.”
The interest rate increase is expected to deal another blow to Calgarians looking to purchase a home or renew their mortgage. Tran said variable rate mortgages can be as high as seven per cent, with stress test rates around eight per cent to qualify for the loan.
“Housing prices have been very high as well, too,” Tran said. “Coupled with the high stress test rate, it’s very difficult for anyone to borrow money nowadays.”
Housing prices in Calgary are expected to remain steady for the foreseeable future, with demand outstripping a narrow supply.
According to Tom Albrescht, a realtor with the A-Team at RE/MAX, there are fewer homes on the market this month and housing development is only representing about half of what’s needed to fulfil demand.
“When you have a low housing stock, you really don’t need extreme levels of demand to keep pushing prices up,” he said.
In June, the total residential benchmark price reached $564,700, up four per cent over this time last year, according to the Calgary Real Estate Board.
The report showed the price of townhomes and apartments are both more than 11 per cent higher than they were in 2022, with price increases of around six per cent for detached and semi-detached homes.
“Certainly (the interest rate) erodes affordability and prices are already up fairly significantly,” Albrescht said. “It reduces peoples buying power.”
An indirect impact of the ongoing hikes to the borrowing rate include the price of rent, which continues to rise in Calgary.
According to Rentals.ca, the average rent in Calgary now sits at $2,008 which is an increase of 18.4% over the last year.
Rentals.ca National Rent Report also showed the average rent for one-bedroom and two bedroom apartments in Calgary also jumped more than 18 per cent over 2022.
A challenge for Luis Sanchez, an international University of Calgary student who was placed on a waitlist for on-campus housing and had to look elsewhere with a limited budget.
“It was definitely a very difficult task to find housing,” Sanchez told Global News. “I was able eventually to find a place to live. However, it is significantly pricier than what I was paying living on campus, and that is in addition to living with another person.”
The interest rate hike comes as concern over debt in Alberta reaches an all-time high.
The latest consumer debt index from accounting firm MNP found seven in 10 Albertans are worried about how they’ll pay down debt, which is the highest across the country.
Nearly half of Albertans surveyed in the report are also concerned about their current level of debt, with the debt becoming too much for others.
“This year, it’s about 1,500 insolvencies per month in Alberta,” MNP licensed insolvency trustee, Donna Carson, told Global News. “So we’ve seen an increase over last year of just about 20 per cent, which is an unfortunate sign.”
Experts suggest homeowners look at making the switch to a fixed rate mortgage to help weather the interest rate hikes.
Tran suggested homeowners begin looking at rates and options up to three months ahead of renewing their mortgages.
“There’s no cost or harm to lock in a rate early just to get that early protection,” Tran said. “So in case rates do continue to climb, at least you have that rate security.”