Interest rates

Hey Guys,

Sorry I`ve been slow with these posts. I`ve been quite busy lately, but I want to get back to writing them. This week, there was an increase in the overnight lending rate, and I wanted to discuss the potential impact.

Interst rates have gone up. This is not new. Fixed rates had shot up awhile ago as they are more in line with the bond markets and not necessarily what the bank of Canada sets at their prime lending rate.

The Canadian economy grew something like 6% in the last quarter which is really an unheard of growth at this point. It was a no brainer that the Bank of Canada had to increase rates to ensure inflation remains modest. You can probably expect more of the same in the near future.

As a homeowner, what does this mean for you!(sorry the question mark doesn`t seem to be working on my keyboard, nor the proper apostrophe) Well, it means you can possibly be paying more interest on a monthly basis. What does this mean if you are looking to buy! There are a couple of factors. First, it will be more expensive to own a home. Secondly, and possibly less intuitively, it means that the growth of housing prices may start to cool down.

The growth of house prices is based on supply and demand. Currently, there has been a growing demand with a limited supply. Hence, prices go up. However, when interest rates rise, housing affordability becomes more difficult and people may be forced to sell their homes. They may have only barely qualified for a mortgage, and when the costs had increased, they can no longer serve their mortgages. I expect prices in Ottawa to flatten out as a result.

I should remind people that my opinion is not fact. These are only opinions and you should make any decisions on your own device. I merely discuss my thoughts to share my ideas as a matter of interest. Please do your own research when thinking about buying or selling real estate.