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What does the Bank of Canada Rate Hike Mean for Real Estate as We Enter the 2nd Quarter 2023

Posted by merlot on June 16, 2023
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What does the Bank of Canada Rate Hike Mean for Real Estate as We Enter the 2nd Quarter 2023What does the Bank of Canada Rate Hike Mean for Real Estate as We Enter the 2nd Quarter 2023If you are wondering What does the Bank of Canada Rate Hike Mean for Real Estate as We Enter the 2nd Quarter 2023 then keep reading:

With the Bank of Canada raising its key interest rate in early June by 0.25 basis points this brings us to 4.75% and the prime rate is now 6.95%. June 26 we get another notice if we will have another rate hike in July.  What does this mean for buyers and sellers as we wind down the first quarter of 2023’s real estate market? This decision to increase interest rates was made in response to the curtailment of the strong Canadian economy that was stronger than expected despite aggressive interest rate hikes this past year!  Increasing the interest rates slowed the market quickly but didn’t slow inflation as much as it had hoped.  This news is significant and has important implications for those looking to buy or sell real estate in the coming months.

What does the Bank of Canada Rate Hike Mean for Real Estate Buyers:

For buyers, the increased interest rate hike means that mortgage affordability continues to decline. With interest rates on the rise, buyers may need to adjust their budgets and expectations when it comes to purchasing a home. This could mean that some buyers may need to look for less expensive properties or adjust their timelines for purchasing a home. Additionally, the interest rate hike typically leads to a decrease in demand for real estate, usually right after a hike as some buyers reevaluate their budget. This writer has noticed there is then a pause for a few weeks followed by an uptick in the real estate sales cycle. This is very area specific as we are seeing hot areas with well priced properties are actually getting multiple offers AKA “bidding wars.” 

What does the Bank of Canada Rate Hike Mean for Sellers in This Real Estate Market:

For sellers, the interest rate hike means that there may be less demand for  your properties unless it is well priced and there aren’t many similar properties for sale in your area! Increase in mortgage interest rates means decrease in affordability and buyers may be less willing to take on a larger mortgage. This could lead to decreased competition among buyers and potentially lower sale prices for sellers. This is why pricing matters and it is CRUCIAL to look at area sales, inventory and direct comparables when determining pricing on your property.

However, it is important to note that the interest rate hike is not the only factor that will impact the real estate market in the coming months. We no longer have any COVID-19 pandemic restrictions. Many restaurants, retail shops, travel etc are all able to be open and operate at full capacity. While the interest rate hike may discourage some buyers, it is possible that since we still have a strong economy and job growth, this has encouraged buyers who have been waiting out the past year to start to enter the real estate market.

Furthermore, the Bank of Canada has indicated that it may continue to raise interest rates in the future as the economy continues to recover. This could impact both buyers and sellers, as higher interest rates would make mortgages more expensive and potentially reduce demand for real estate. It is also very important to have a local REALTOR® who can advise you on purchase/selling timing, help you understand what other comparable properties are selling for so you can get the best bang for your buck as a seller and a buyer in today’s evolving real estate market. Contact us today to get a property evaluation or to discuss your buying needs – we’re here to help! Stay tuned for my next blog on what are the benefits of using a local REALTOR®.

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