“I think we are going to see a significant slowdown,”
That’s from Andrea Rainbow from Mortgage Advantage West out of Invermere in response to how the latest Bank of Canada rate hike will impact those looking to enter the housing market.
In an interview with Vista Radio, Rainbow told Vista Radio the latest quarter of a percentage point increase will likely drive more people out of the market – especially single people and young families.
“We have to qualify on a contract rate plus two percent. So, right now, we are looking at qualifying first-time home buyers with five percent down and they have to qualify at a rate of over seven percent. That’s very tricky.”
“When you have a young person or a single family trying to purchase at home at five percent down is already tough enough but when you are trying to qualify at 7.34% is generally the five-year fixed rate that we have to use. It drops their purchasing power significantly.”
Rainbow added those looking to add to their investment portfolio will also feel the pinch.
“They are not able to qualify for what the pricing is at this moment and they don’t have much of a choice but to wait. There is also more clientele that is being cautious – those that are looking at investment properties or second homes – they are pulling back.”
“In terms of overall qualification, that is where we have seen a significant drop in business just because people simply cannot afford to qualify at the level they need to get into the market,” added Rainbow.
She stated this situation is similar to the 2008 crash where we saw elevated prices followed by higher rates, which then led to a lengthy downturn in property values.
“I think what is going to happen is that we will peak at a certain level here and then we are going to see a lot of stagnant real estate activity just because of qualification rates being so high. I think those that have purchased over the last two years at elevated pricing, those prices are going to sit level for a long time and likely decrease.”
The latest rate hike raised the eyebrows of BC Premier David Eby who is wondering if the Bank of Canada is considering the impact on Canadians before making a decision to increase its rate.
Eby believes the full impact has yet to be felt, with people renewing their mortgages and small businesses struggling to recover from the pandemic.
The Bank has argued consumer spending and most prices continue to rise.
It’s expected to take longer to get back down to their target of a two percent inflation rate, perhaps not until 2025.
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