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Thursday, December 9, 2021

Pattie Lovett-Reid: Bank of Canada governor sees signs of ‘excess exuberance’ in real estate market

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HUNTSVILLE, ONT. —
Over the past year, one thing has become abundantly clear as we work from home. We now know with crystal clear clarity what our homespace should look like. If it didn’t meet your new expectations, you likely have been on the move.

The result? Home prices are on the rise, and this has caught the attention of the Bank of Canada governor Tiff Macklem. 

Throughout the pandemic, one of the pillars of the economy has been the real estate market. Rising demand, constrained supply and rock-bottom rates are all conspiring to lead us to believe home prices have only one way to go: higher. 

Now to be fair, home prices have been on the rise, but we still have a long way to go before we get to the heated market of five years ago. But that doesn’t mean the Bank of Canada isn’t watching this closely. Macklem has stated he is seeing early signs of what he called “excess exuberance,” with people expecting the recent increases in prices to go on indefinitely. 

I have learned that nothing goes on indefinitely when one of the variables changes. In this case, it could be mortgage rates.

Canadians might have grown accustomed to fixed rates continuously declining after the five-year fixed rate in Canada reached a record low this past summer of 1.39 per cent.

This is about to change for the first time since the pandemic began.

According to RateHub.ca, fixed rates are on the rise in response to higher-than-expected inflation in January. And if this inflation continues to go higher and optimism around the vaccine rollout continues, Canadians should expect to see rates continue to move higher. By the end of the week, the expectation is for the best rate to be 1.54 per cent.

Call to action: if you are in a variable rate mortgage, you might want to consider locking in. If you are first time homebuyer, a mortgage pre-approval today will hold rates for 90-120 days. 

According to the RateHub.ca mortgage calculator, a homeowner with a 10 per cent downpayment on a $500,000 home with a five-year fixed rate of 1.39 per cent and a 25-year amortization would see their payments increase per month by $32.00, or $384.00 per year, if rates increase to 1.54 per cent.

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