Interest Rates Are Up! Now What?

The Bank of Canada increased its Overnight Rate to 0.75% yesterday from 0.50%. Even though the inflation rate sits below the target of 2%, the Bank felt there were other factors (increased employment numbers, an increase in the GDP and increased business and residential investment) that indicated the unusually low rate of 0.50% was no longer necessary. This is the first time the Bank has increased the rate since 2010 when it was increased to 1.00%. Of course, the big banks immediately increased their prime lending rate by an equivalent 0.25%

Interest rates have been historically low since the recession of 2008/2009 and the stock market crash of September 2008. In April 2009, the Overnight Rate was dropped to 0.25%, the lowest recorded level, for over one year. Between June 2010 to September 2010, the rate was increased to 1.00% where it remained for over four years until January 2015. In 2015 the rate was reduced twice to bring it down to 0.50%. 2015 is the year that oil prices plummeted. The rate remained at 0.50% until yesterday.

How will this affect the real estate market?When interest rates increase, many buyers may feel compelled to make a purchase while they still have a lower, locked-in rate or at least before the rate goes up again. An increase in interest rates can mean that some buyers will no longer qualify for the mortgage they need. The recent increase is so small that it should have little effect. 0.75% is still a very low rate. Many economists do expect the Bank to raise the rate again by the end of the year.  The Overnight rate has not been above 1.00% since January 2009. Even when inflation spiked above 3% in 2011, the rate remained at 1.00%.

NOTE: The Overnight Rate has been fixed by the Bank of Canada since 1996 and has not been over 6.00% in that time. Prior to 1996, the rate was floating and tied to the 3 month yield on Treasury bills.


June Update

Overall sales decreased slightly last month, which is typical for this time of year. The big news is the number of condo sales last month which hit record-breaking levels at 683. At $325,300, the Benchmark price for apartments/condos in the Fraser Valley increased 10.3 per cent compared to May 2017, and increased 40.3 per cent compared to June 2016. Clearly, people are eager to get into the real estate market and condos are the way to do that for many people. The horribly low, rental vacancy rate may have a lot to do with that. The inventory for detached homes increased slightly across the Fraser Valley however, the numbers are still below average. All areas, except South Surrey, remain in Seller’s markets for all property types. The detached market in South Surrey dropped into a balanced market last month, however, for properties listed under $1.5M, the market is still a strong Seller’s market. Most areas of the Fraser Valley saw 100% of the attached inventory sell last month.

Prices continue to rise for all property types, except in South Surrey where the inventory of homes priced over $1.5M remains high and the average home price there has remained stable for the past 12 months.

Buyer Opportunities (Detached)

In Surrey, inventory is low but Royal Heights may provide some good deals.

South Surrey – lots of sitting inventory in the Elgin Chantrell area. Instead of buying something brand new, consider buying one of these beautiful, but dated homes, on larger lots and renovating.

Buyer Opportunities (Attached)

Making small sacrifices may be the only way to get a good deal (or any deal). Look for something that hasn’t been well maintained by the owner. Two bedroom townhouses are less desirable than three bedrooms. If you don’t need a fenced yard, don’t pay the extra money for it.

If you are thinking of selling, now is still the right time. I offer a full-service, listing package at competitive rates.