The Canadian housing market has experienced significant changes over the last two and a half years due to the COVID-19 pandemic and its effects on the economy. In the wake of supply chain disruptions and lockdowns, home prices rose dramatically, resulting in bidding wars and a surge in home ownership. However, as the economy has reopened, prices for goods and services have risen, leading to high inflation levels, which have prompted the Bank of Canada to increase interest rates at a fast pace. As a result, mortgage rates have also increased, while home prices have dropped significantly.
Variable rate mortgage holders are likely to feel the impact of the interest rate hikes immediately, as their rates are tied to the Bank of Canada’s overnight rate. In contrast, fixed-rate mortgage holders will experience a delay in the effects of the increasing mortgage rates since their rates are locked in for a certain period. However, they will have to be prepared for higher mortgage payments when their mortgage renewals come up. Moreover, home prices across Canada have been declining since March, with the most significant drops happening in the hottest markets of Ontario and British Columbia.
The declining home prices offer an opportunity for first-time home buyers, but the cost of borrowing has risen significantly. As a result, it has become more challenging for some buyers to qualify for a mortgage. The Bank of Canada has indicated that interest rates will continue to rise in the coming months to slow down economic growth and inflation levels. Until demand and supply are in balance, mortgage holders will have to navigate turbulent financial waters to weather the storm. However, owning a home remains a solid long-term investment.