ATHABASCA – An Oct. 25 announcement from the Bank of Canada (BoC) went exactly as many financial experts expected, with the bank holding its overnight rate at five per cent.
A year ago, the overnight rate, also known as the policy or key interest rate, was at 3.75 per cent, and the rise, while not unexpected, has left many Canadians facing tough decisions as they look to buy or sell a new home.
“Buyer interest rates have impacted how people are buying in every area across the province,” said Keith Madsen, a licenced realtor with Maxwell Progressive and a licenced mortgage associate with Dominion Lending Centres, who serves the Athabasca area. “There’s a lot more hesitation when they’re looking at their monthly payments at these higher rates.”
The BoC is targeting a three per cent interest rate by the end of 2024, and a return to its goal of two per cent by 2025. In the meantime, Canadians who are on a variable rate mortgage — a mortgage where their payments are tied to the overnight rate instead of fixed — can see $500 or more increases in their monthly payments.
According to Madsen, a $400,000 mortgage at a 25-year amortization rate with two per cent interest would have a monthly payment of $1,791. That same mortgage at today’s rate would have a $2,326 monthly payment.
“If you’re a seller who has a fixed mortgage at two per cent, do you really want to sell your house? No!” said Madsen. “If you have to break that mortgage, you can’t afford the house you’re in anymore, that payment is going go up.”
Demand destruction
Part of the BoC’s goal is to slow down the economy — according to the announcement, “there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures.” While that theory holds true nationally, a local realtor said that they’ve yet to notice a decrease in their workload.
“Interest rates are hurting people for sure, but I’m not sure if (the Athabasca market) has really slowed down as of today,” said Trevor Yurchak, a licenced broker and co-owner of Royal LePage County Realty in Athabasca. “Our inventory is our biggest challenge (since) we have demand in all our price ranges.”
The BoC’s governing council, which makes decisions for the institution, said it isn’t opposed to raising rates further if need be.
“(We) are concerned that progress towards price stability is slow and inflationary rates have increased, and (are) prepared to raise the policy rate further if needed,” read the release.
“(The) governing council wants to see downward momentum in core inflation, and continues to be focused on the balance between supply and demand in the economy, inflation expectations, wage growth and corporate pricing behaviour.”
