The Effects of Rising Interest Rates

1 min read

Throughout 2022, we saw seven significant interest rate hikes. Starting the year with a 0.25% spike and ending at a high of 4.25%, these increases resulted in Canada’s prime rate increasing to 6.45%.

 Everyone is feeling the effects of the higher interest rates. One sector that has been hit hard in every aspect is the real estate market, from higher costs in labour and construction, reduced purchases in approved development sites, reduction in overall housing cost, and increased mortgage rates.

 Many first-time home buyers need help with the real estate market. With the prices of homes reducing, it provides a false sense of hope as interest rates make monthly mortgage payments almost unsustainable, leaving many Canadians to rethink their decision on a new home.

 Individuals that have purchased a home are feeling the stress of the rising interest rates and feeling at a loss with how they will be able to afford their mortgage. Those who have planned on selling their home will see a value decrease of up to 12%.

Depending on how the Bank of Canada moves forward with their tightening policy, we can see the continued increases reduce and potentially go down by mid to late 2023.

References

Evans, P. (2022, December 16). Average Canadian house price declined again in November, to $632,802. CBCnews. Retrieved February 5, 2023, from https://www.cbc.ca/news/business/crea-housing-number-november-1.6686776

Jones, R. P. (2022, December 20). They purchased homes right before the real estate downturn. now, they're struggling to close | CBC news. CBCnews. Retrieved February 5, 2023, from https://www.cbc.ca/news/canada/toronto/ontario-homebuyers-struggle-close-1.6685427

Liew, C. (2022, December 12). How high can Canada's prime rate go? CTVNews. Retrieved February 5, 2023, from https://www.ctvnews.ca/business/how-high-can-canada-s-prime-rate-go-1.6190945

Marshall, S. (n.d.). Will rising interest rates be the pin that bursts the housing bubble? Edward Jones. Retrieved February 5, 2023, from https://www.edwardjones.ca/ca-en/market-news-insights/stock-market-news/market-pulse/rising-interest-rates#:~:text=Higher%20interest%20rates%20lead%20to%20higher%20monthly%20payments&text=However%2C%20higher%20BoC%20interest%20rates,through%20higher%20monthly%20housing%20payments.


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