The Bank of Canada raised their overnight rate by a 5th consecutive announcement in early September by 75 basis points and the overnight rate now sits at 3.25%.
Effect on Home Sellers
Many buyers are looking at homes more casually and more likely to do so with the increasing interest rates. With affordability and the stress-test being key factors, more and more buyers are exiting the market even with lower and adjusted sale prices.
The real estate market is slowing down with children going back to school and the holiday season coming up. It’s a non-traditional time for selling homes and even with home prices decreasing, with interest rates increasing, buyers are questioning affordability further cooling the market. Home prices will continually decrease with the changing seasons. More and more homes are entering the market and stay on the market longer with no adjustments to the marketing efforts or pricing of the home. This is causing a disconnect between the buyers and sellers.
What To Do As A Seller
It’s important to focus on the current market situation and where the market is headed by making adjustments to the selling strategy. When listing your house for sale, consider the buyer profile, what they’re looking for and what you can reasonably expect them to offer. Price your homes according to the current market and gear marketing efforts towards buyers that are ready to make a purchase rather than more casual buyers.
If you’re motivated to sell your home or are wondering what your home is worth in this market, fill out this quick and easy form and I’ll reach out to you with an updated home evaluation.
Impact on Buyers and Homeowners
The prime rate is now 5.45% and this is used to gauge discount rates and mortgage rates.
The immediate impact of the rate increase falls on variable rate mortgage holders, particularly the adjustable rate mortgages.
There are 2 types of variable rate mortgages. A static payment variable mortgage and an adjustable payment variable mortgage. For static payments, payments stay the same and an increase in interest rate increases attributes the payment made more to interest and lesser to the principal. With the latest interest rate hike, static payment variable mortgages will trigger a rescheduling of payments and re-amortization of mortgages because when interest rates are high and your payments haven’t increased in proportion, you’re basically in an interest only loan. The borrower is required to pay more towards their principal to pay off their mortgage which is why static payments have to be re-amortized with high rate increases.
The other type of variable mortgage has an adjustable payment where payments increase along with interest rate increases. Currently, a variable mortgage holder with adjustable payment with a property valued at $500,000 and a 30-year amortization faces an increase in payment by 47%.
What To Do As A Buyer and Homeowner
Take some time to re-evaluate your finances and options with a professional. If you need help re-evaluating your finances and need some organizing feel free to contact me. Together, we can look through your finances and figure out the best solution for you in these changing times.