Are interest rate increases over?

The Bank of Canada as expected raised their prime rate by 0.25%. Is this it for the escalation of interest rates? Many consumers who have variable rate mortgages and lines of credit sure hope this is true. I suspect the rate increases are done or are close to the top.

Reasons why we believe rate increases will end?

1. Damage to the housing market

The local real estate market slid over 20% in price. Further rate increases will only damage the market more.

2. Affordability

Consider that in Hamilton-Wentworth the average detached home sold for $817,515 and the average home sold at $750,601.

Now let’s look at a half million dollar mortgage payments with today’s rates. The principal and interest costs per month would range from $2834-$2962/mth. This is simply unaffordable for most Hamilton families.

3. Housing crisis

The collateral damage for higher mortgage rates has been fewer home sales and an increase in renters. Landlords have discovered that fewer rentals are available and rents now be raised to unthinkable levels from years ago. Something has to give us housing is being considered a luxury.

4. Economic slow down

It’s bad enough that mortgage rates have risen so high, but so have other areas of the economy. With food and energy costs also spiralling higher, Canadians are finding it more difficult to live.

5. Stress test

Given the Canadian mortgage stress test still exists at 2% above current rates, potential mortgage purchasers will find it most difficult to be approved unless mortgage rates are lowered or the stress test is eliminated.

Although we believe rate increases are done, we do not think rates will come down quickly nor deeply. What does this imply? The new normal four mortgage rates will be between 3.5% to 5% in the foreseeable future. Super low rates in the 1% to 2% range our history. Our new advice is simple: prepare for the future rate environment.