‘Now it’s a race’: Economists expect hot water housing market as buyers scramble to get in before interest rates rise

The Bank of Canada’s decision to keep interest rates low on Wednesday is the starting point for another hot water real estate market, as homebuyers step in before raising rates later this year.

After nearly two years of record-low interest rates, which helped Canadian house prices grow at their fastest record on record, economists and mortgage experts expect an interest rate hike as soon as March that could eventually slow the overheated housing market by the cost of borrowing.

Meanwhile, homebuyers are likely to be motivated to take advantage of low interest rates before it is too late.

“People will want to enter the market to make sure they are inside before closing the window,” said Benjamin Tal, deputy chief economist at CIBC World Markets.

Tal expects the average number of home sales to increase by 20 percent over the next few months, from about 50,000 monthly sales to 60,000.

“We can see relatively strong activity in the spring until the market slows in the second half of the year,” he said.

Brokers are already expecting a warmer-than-usual spring market. According to Royal LePage, more than half of Canadian real estate markets – 61 percent – saw a quarterly increase of three percent or more in the last quarter of 2021, a time when the market is typically at its slowest pace.

The average house price rose 26.6 percent in December to $ 811,700 from a year earlier, according to the Canadian Real Estate Association.

Homebuyers have shown increasing interest in suburban homes and rural areas, pushing up prices in cities including Cambridge, Barrie and Burlington by double digits.

“The spring market is hotter than I’ve ever seen it, and people are going to keep chasing the market in the hope that they are not the last buyer before prices fall,” says Daniel Foch, a broker at Foch Family Property.

“Now it’s a race.”

The Bank of Canada’s decision to keep interest rates at 0.25 percent on Wednesday was accompanied by clear messages that Canadians can expect rates to rise later this year as central bankers try to cool inflation, which reached 4.8 percent in December. compared to the previous year.

Some economists expect the first rate hike to come in March, when the central bank hopes the Omicron variant of COVID-19 will complete its Canadian tour, followed by four to six subsequent hikes in the next 12 months.

This will lead to an increase of more than one percentage point in the central bank rate, which will drive up the cost of mortgages.

With several interest rate hikes, the housing market could eventually start to cool down as homebuyers find it increasingly difficult to get affordable mortgages, Tal said.

“If the bank moves six times, it will generate activity in the market that will not be positive. “Sales will fall, some investors may leave the market,” he said.

Throughout the pandemic, many homebuyers have chosen 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 rise along with the central bank’s borrowing costs. Thus, if the bank raises interest rates significantly, homeowners will have significantly more to pay on their mortgages.

However, until those increases are announced, Canadians can expect property valuations to rise.

“The early stages of this spring market are going to be extremely strong, we know that for sure,” says Robert Kavcic, an economist at BMO Capital Markets.