When the Bank of Canada (BoC) weaponizes its overnight rate to fight inflation, as it did earlier this week, moving its overnight rate from .25% to .5%, it is primarily targeting the energy, automotive and housing sectors of the economy..The BoC overnight rate is what Canadian banks pay to borrow money from each other. The banks in turn add a percentage point or two to that rate to arrive at what they charge their customers to borrow money for mortgages, personal loans, credit card, home equity lines of credit, etc..Mortgages account for the largest amount of money. If, due to high demand, prices rise so high and fast that no one can afford to buy, sellers will lower prices, which, if done too rapidly, can lead to a housing bubble forming and bursting. .BoC is hopeful raising its rate will slowdown demand for housing and keep less qualified buyers out of the market, thus avoiding a housing markets crash. .All housing markets are monitored by BoC, but its eyes are focused on activity in the country’s two largest metropolitan areas, the Greater Toronto Area (GTA)* and Metro Vancouver (Metro Van).** .They’re the focus because they have the highest home prices in Canada (a benchmark price of $1,334,544 in the GTA and $1,313,400 in Metro Van)..Activity in both was high in February..The GTA saw 9,097 sales in February, the second-best February in history, says Toronto Region Real Estate Board (TRREB) president Kevin Crigger..“Demand for ownership housing remains strong throughout the GTA, and while we are marginally off the record pace seen last year, any buyer looking in this market is not likely to feel it with competition remaining the norm,” says Crigger..“Many households sped up their home purchase and entered into a transaction in 2021, which is one reason the number of sales were forecasted to be lower this year and a trending towards higher borrowing costs will have a moderating effect on home sales. Substantial immigration levels and a continued lack of supply, however, will have a countering effect to increasing mortgage costs.”.In Metro Van, the Real Estate Board of Greater Vancouver (REBGV) reports steady sales activity, modest increases in listings and continued upward price trends in February..Sales topped off at 3,424 homes, a 26.9% increase over the 10-year February sales average, and a slight 8.1% decrease from February 2021. .“Despite having a higher volume of people listing their homes for sale in February, the region’s housing market remains significantly undersupplied, which has been pushing home prices to new highs month after month,” Biggar says..“As we prepare to enter what’s traditionally the busiest season of the year, the Metro Vancouver housing market is seeing more historically typical home sale activity.”.Housing executives across the country say the number one issue contributing to increasing prices is a lack of supply..“We have seen a slight balancing in the market so far this year, with sales dipping more than new listings. However, because inventory remains exceptionally low, it will take some time for the pace of price growth to slow,” says TRREB chief market analyst Jason Mercer..“Look for a more moderate pace of price growth in the second half of 2022 as higher borrowing costs result in some households putting their home purchase on hold temporarily as they resituate themselves in the market.” .“A lack of housing supply is at the heart of the affordability challenges in Metro Vancouver today,” says Biggar..“We need more coordinated action from stakeholders at all levels to help create an ample, diverse supply of housing options for residents in the region today and into the future.” .The BoC is scheduled to make six more rate announcements this year, with expectations the rate will hover between 1.25% and 1.5% by the end of the year. .The year-end rate could very well be determined by activity in the GTA and Metro Van..The bottom line to the recent increase: If you have a variable-rate mortgage or home equity line of credit, you’ll be affected right away. You should also be budgeting for further rate increases throughout 2022..If you have a fixed-rate mortgage, you won’t be affected until your renewal date, when you can expect higher rates..*In the Greater Toronto Area, there are 25 incorporated municipalities in either York Region, Halton Region, Peel Region, Durham Region, and the City of Toronto.**Areas in Metro Vancouver include: Burnaby, Coquitlam, Maple Ridge, New Westminster, North Vancouver, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, South Delta, Squamish, Sunshine Coast, Vancouver, West Vancouver and Whistler..Myke Thomas is a Western Standard contributor
When the Bank of Canada (BoC) weaponizes its overnight rate to fight inflation, as it did earlier this week, moving its overnight rate from .25% to .5%, it is primarily targeting the energy, automotive and housing sectors of the economy..The BoC overnight rate is what Canadian banks pay to borrow money from each other. The banks in turn add a percentage point or two to that rate to arrive at what they charge their customers to borrow money for mortgages, personal loans, credit card, home equity lines of credit, etc..Mortgages account for the largest amount of money. If, due to high demand, prices rise so high and fast that no one can afford to buy, sellers will lower prices, which, if done too rapidly, can lead to a housing bubble forming and bursting. .BoC is hopeful raising its rate will slowdown demand for housing and keep less qualified buyers out of the market, thus avoiding a housing markets crash. .All housing markets are monitored by BoC, but its eyes are focused on activity in the country’s two largest metropolitan areas, the Greater Toronto Area (GTA)* and Metro Vancouver (Metro Van).** .They’re the focus because they have the highest home prices in Canada (a benchmark price of $1,334,544 in the GTA and $1,313,400 in Metro Van)..Activity in both was high in February..The GTA saw 9,097 sales in February, the second-best February in history, says Toronto Region Real Estate Board (TRREB) president Kevin Crigger..“Demand for ownership housing remains strong throughout the GTA, and while we are marginally off the record pace seen last year, any buyer looking in this market is not likely to feel it with competition remaining the norm,” says Crigger..“Many households sped up their home purchase and entered into a transaction in 2021, which is one reason the number of sales were forecasted to be lower this year and a trending towards higher borrowing costs will have a moderating effect on home sales. Substantial immigration levels and a continued lack of supply, however, will have a countering effect to increasing mortgage costs.”.In Metro Van, the Real Estate Board of Greater Vancouver (REBGV) reports steady sales activity, modest increases in listings and continued upward price trends in February..Sales topped off at 3,424 homes, a 26.9% increase over the 10-year February sales average, and a slight 8.1% decrease from February 2021. .“Despite having a higher volume of people listing their homes for sale in February, the region’s housing market remains significantly undersupplied, which has been pushing home prices to new highs month after month,” Biggar says..“As we prepare to enter what’s traditionally the busiest season of the year, the Metro Vancouver housing market is seeing more historically typical home sale activity.”.Housing executives across the country say the number one issue contributing to increasing prices is a lack of supply..“We have seen a slight balancing in the market so far this year, with sales dipping more than new listings. However, because inventory remains exceptionally low, it will take some time for the pace of price growth to slow,” says TRREB chief market analyst Jason Mercer..“Look for a more moderate pace of price growth in the second half of 2022 as higher borrowing costs result in some households putting their home purchase on hold temporarily as they resituate themselves in the market.” .“A lack of housing supply is at the heart of the affordability challenges in Metro Vancouver today,” says Biggar..“We need more coordinated action from stakeholders at all levels to help create an ample, diverse supply of housing options for residents in the region today and into the future.” .The BoC is scheduled to make six more rate announcements this year, with expectations the rate will hover between 1.25% and 1.5% by the end of the year. .The year-end rate could very well be determined by activity in the GTA and Metro Van..The bottom line to the recent increase: If you have a variable-rate mortgage or home equity line of credit, you’ll be affected right away. You should also be budgeting for further rate increases throughout 2022..If you have a fixed-rate mortgage, you won’t be affected until your renewal date, when you can expect higher rates..*In the Greater Toronto Area, there are 25 incorporated municipalities in either York Region, Halton Region, Peel Region, Durham Region, and the City of Toronto.**Areas in Metro Vancouver include: Burnaby, Coquitlam, Maple Ridge, New Westminster, North Vancouver, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, South Delta, Squamish, Sunshine Coast, Vancouver, West Vancouver and Whistler..Myke Thomas is a Western Standard contributor
