New key rate hikes: what are the impacts

Since the beginning of the year, there have been successive increases in the key rate to fight against inflation. The last revision of the key rate, which dates to July 13, set it at 2.50%.

Inevitably, this increase will have repercussions on future buyers and sellers. Discover my take on the current situation in this article.

Successive Increases in the Key Rate

The last update of the key rate dates to Wednesday, July 13. If experts in the field had predicted an increase of around 2.25%, the rate was set at 2.50%. It is therefore an increase of one point compared to the previous rate, which corresponds to the largest increase ever recorded since August 1998.

As a reminder, three increases had already been recorded this year, namely:

  • 0.25% point in March to reach 0.5%
  • 0.50% point in April to reach 1%
  • 0.50% in June to reach 1.50%

And so, a final increase of 1% to reach 2.50%!

 

The reasons for these key rate hikes

Among the reasons for these increases, the Bank of Canada cites, among others, the war in Ukraine and the many disturbances that the conflict has caused. However, the main reason remains the inflation which affects the country, but also the rest of the world. This inflation in Canada is also fueled by supply difficulties and not domestic demand which remains strong, and which continues to drive up prices…

Moreover, one of the objectives of this increase is to curb the effects of this inflation. According to the Governor of the Bank of Canada, the establishment plans to bring inflation back to its target level of 2% to favour the economy and try to stabilize prices once again.

You should know that at the beginning of this year, the level of inflation recorded was already 5.1%. This greatly exceeds the range of 1% to 3% set by the Bank of Canada.

 

The Consequences of Key Interest Rate Hikes

The main victims of these successive increases in the key rate remain households and certain businesses. Indeed, as borrowers, because of the increase in the key rate, they will be forced to pay much higher interest.

This therefore means repercussions on the costs of mortgages and more difficulty for buyers to finance the cost of their investment. As the cost of borrowing increases, buyers’ financing capacity decreases mathematically…

An Expected Correction in the Real Estate Market

The increases in the key rate have already had an impact on the real estate sector and on the number of transactions. According to the latest report released by the Royal Bank of Canada, the country could see a drop in real estate sales of around 23% this year and around 15% for 2023.

This lull is surely welcome in a frenetic market for two years now, but it does not prevent it from also raising questions for owners: is it still a good time to sell your property?

A window of opportunity at the start of the school year

To answer this question, keep in mind that a further increase in the key rate is planned for the start of the school year and this could further complicate things for buyers, and therefore for sellers. But pending this decision, and with the market correction that could follow, there might be a window of opportunity for sellers.

Several buyers still have a mortgage pre-approval in their pocket with interest rates already fixed and advantageous. In other words, these buyers currently have a greater purchasing capacity than expected at the start of the school year. This is a godsend if you want to sell your property now!

It is therefore likely that the coming weeks will be the last chance for sellers to sell at the best price. The damage caused by the successive increases in the key rate will be felt above all in the fall when it is probably less favourable to put your property up for sale.

If you would like to take advantage of this window to consider a real estate project in or around Ahuntsic, contact me! I will be happy to advise and accompany you!

Want to know more about the real estate world. Discover the new role of the municipal tax.

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