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With a July rate announcement right around the corner the Canadian interest rate guessing game begins. It has been wildly reported that one of the things that could certainly smolder a hot real estate market would be rate hikes.
2015 was an interesting year. With talk that Canada was in a recession combined with the ever dropping oil prices and a dollar that hit the floor, the Bank of Canada reduced interest rates by .25% twice, leaving Canada’s lending rate at .5% which has only been seen twice prior to 2007, before the recession in 2008 hit.
In fact, we took a look back at the Bank of Canada’s past interest rate announcements since 2007 and the results were interesting:
A few points to note:
Where speculation is concerned, Canada is not currently in a recession (this acknowledges the issues in Alberta) and oil prices are increasing (see more at: http://oilprice.com/Energy/Energy-General/Why-Oil-Prices-Increased-Despite-Doha-Disaster.html). Could this mean a July 2016 interest rate increase or, as was the case with April’s announcement, will the Bank of Canada maintain the status quo?
There is no doubt, should interest rates get back to 2007 levels, that this will have an impact on the housing market. Look at urban centres like Toronto and Vancouver, where the average price of a single family detached home has surpassed 1 million dollars, where a mortgage on the same property at 2007 interest rates vs todays rates would cost significantly more to repay both in bottom line cost and in massive mortgage payments. This could certainly impact demand.
Also, what is interesting is that, should rates go up, depending on how the economy is performing, it could happen as rapidly as they went down – and we saw that they went from 4.5% in July of 2007 down to .25% in under 24 months.
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