Bank of Canada raises the key interest rate by three-quarters of a percentage point, bringing it to 3.25 %

The Bank of Canada has raised its policy rate five times in 2022, to 3.25 per cent today.  Bank of Canada has stated borrowing costs need to rise  to bring inflation back to target of 2% from the current rate of 7.6%.  In theory, higher interest rates discourage spending on goods and services, which reduces demand and lowers inflation.

Most economists believe the Bank of Canada will now hold the overnight rate at 3.25% until the end of 2022 to cool domestic inflation and bring the economy back to balance without triggering too severe a recession or stagflation. However, with 2 more rate announcements remaining in 2022 (October and December) it is quite conceivable another rate shock hike is in store before 2022 closes out by our central bank.

The effect on house prices across Canada because of soaring interest rates according to Phil Soper, President and CEO of Royal LePage is “We have significantly reduced our outlook for 2022, however home prices are still forecast to end the year higher than 2021 and well above pre-pandemic norms.

Following record price gains across the country, numerous markets in southern Ontario and parts of Greater Vancouver – specifically those that saw some of the highest price appreciation over the last two years – experienced a second quarter decline (approximately 6% Nationally, but sharper declines in British Columbia and Ontario).

I expect this highly unusual downward movement in home values will be short-lived as the country’s chronic housing shortage has not been resolved.  Given our exceptionally low level of unemployment (4.9% currently), growing population with hundreds of thousands of new Canadians arriving in Canada this year and miniscule rate of mortgage default, we expect that the second quarter of 2022 produced most of the price declines,” continued Soper.

While home prices have dropped thus far in 2022, according to Robert Hogue Assistant Chief Economist at RBC, “National home resales have also fallen 31% in the first half of 2022 and RBC projects that National home resales will fall 23% this year, and a further 15% in 2023.” 

The next rate-setting day is October 26th, 2022.

Now is the time to get in touch for a review of your mortgage strategy. It’s important to get advice and a professional assessment of your situation if you want to switch your mortgage for a new rate, need a new mortgage, are renewing, or looking to refinance for debt consolidation, renovations, or other large expenditures.