The news is out – the Bank of Canada raised interest rates (again) by 25 bps, largely consistent with consensus estimates. Stronger than expected consumption and stubbornly tight labor markets drove inflationary pressures to remain persistent for services, leading to the expected hike. 

The BoC revised its forecast to show a slowdown in inflation to take longer than expected, now to hover around 3% for the next year, before easing to the 2% target in the middle of 2025.

BoC Policy Rate (Last 25Y)

 

What does this mean?

• This represents the highest Bank of Canada interest rate over the last 22 years!
• There has been a total 475 bps increase to interest rates since the March low rate of 0.25%
• Cost of mortgages will adjust accordingly, as well as all other loan products

How does this affect me?

• Individuals with large debt balances will feel the pinch, with further costs going to interest payments
• Barrier for the mortgage stress test would increase along side mortgage rates (now need to qualify at yet another higher rate)

How will this affect the housing market?

• If only we had a crystal ball... but from what we can see from the real estate side of things, those who were thinking to sell, without previously locking in an interest rate for the anticipated move, will likely avoid selling (have to now qualify at a higher rate) - further lack of inventory
• Market will likely continue as a Sellers' Market for some time, until the demand equation balances out (i.e., hike of interest rates have put off buyers enough to offset the impact of lower inventory)
• There is a potential for more properties to come onto the market, however in Calgary the outlook may an the outlier
• Particular to Calgary – economic and job growth continues to be strong, especially in Alberta, relative to the rest of Canada; belief here is that the strength of the economy is enough to handle the increase in cost of borrowing
• Those who cannot qualify to buy will have to turn to the rental market – expect a continued tight market in the rental space for some time

What can I do to protect myself?

• Watch debt balances and be aware of what interest rate you're being charged and how that has changed over time
• If you're looking to buy, best advice now is to work with a mortgage broker that is tapped into the market to provide the best opinion possible
• Challenging times ahead but hopefully rates will hold flat for sometime after this, as most economists are expecting
• Work with a realtor that is tuned-in to the market dynamics and knows how to navigate this turbulent market

Hope you found some value in this update. As always, we're here to help if you have any questions about buying / selling. You can never time the market perfectly, but it will be prudent to get as well-informed and positioned as you can to achieve your goals.