One of the biggest pieces of Real Estate news we've seen in the last few weeks has been the rise of interest rates, as the bank of Canada has raised its key lending rate to 0.5 from .025 percent.
The rate hike has been speculated for some time, so its not that surprising to see. We've been heading rumours of interest rate hikes for months, with experts and others suggesting that we could see upwards of 4/5 hikes in the next 24 months.
Here's some thoughts:
Yes, this hike was expected and needed with what is happening in the world, it may very well be the first of a few. What probably will not happen is rates spike to the point that they reach the levels of 1992, where rates hit 18/19 percent for some.
A bit of context is needed here. Yes, the overnight rate is now 0.5 percent, but does anyone remember where it was pre-pandemic? IN March of 2020, the overnight rate was 1.8. There was and is no world where interest rates would stay at 0.25 as the world re-opened, and as the issues with supply chain, communities issues that are prevailing in Europe.
The last time we saw rates in the 0.25 area was 2010, fresh off the US economic collapse. On June 2010, the Bank of Canada raise the overnight rate from 0.25% to 0.50%, and hiked it two more times after that. The rate remained at 1.00% until it dropped again in 2015.
So what does this all mean? We have always seen fluctuation in the interest rates and will continue to do so, interest rates have fluctuation and worldwide events, be it a pandemic or financial collapse as we saw in 2010, the banks will react.
Through all that, we never saw rates climb to the point where it was unsustainable and unaffordable, outside of a few blips. When I bought my first home, I felt lucky that I was able to get a 4.5 rate locked in, every home I’ve purchased since then have seen that rate lower and lower. I do not anticipate 0.50 to remain, however, history educates us with regards to the future, and when there have been worldwide issues, we see reactions, but nothing that should be labeled a crisis or significantly concern home owners.
If you are on a fixed rate, your good, keep making your payments and smile. If you are on a variable rate, be in contact with our broker and monitor what their thoughts are. Honest, I can't see rates going high enough that it becomes worth locking something in, but don't take my word for it, talk to your mortgage broker.
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