{"id":8925,"date":"2023-01-24T10:10:00","date_gmt":"2023-01-24T10:10:00","guid":{"rendered":"https:\/\/wahi.com\/ca\/en\/?p=8925"},"modified":"2024-06-05T16:11:15","modified_gmt":"2024-06-05T16:11:15","slug":"why-are-canadian-interest-rates-soaring-and-will-they-continue","status":"publish","type":"post","link":"https:\/\/wahi.com\/ca\/en\/learning-centre\/real-estate-101\/buy\/why-interest-rates-are-soaring","title":{"rendered":"Why Are Interest Rates Soaring, and Will They Continue?"},"content":{"rendered":"

[et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on” da_disable_devices=”off|off|off”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” width=”95%” max_width=”100%” custom_margin=”||-24px||false|false” custom_padding=”55px||||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_breadcrumb _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_breadcrumb-link title=”Real Estate 101″ _builder_version=”4.18.0″ _dynamic_attributes=”link_option_url” _module_preset=”default” link_option_url=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9saW5rX3VybF9wYWdlIiwic2V0dGluZ3MiOnsicG9zdF9pZCI6IjcyMiJ9fQ==@” global_colors_info=”{}”][\/wahi_breadcrumb-link][wahi_breadcrumb-link title=”Buy” _builder_version=”4.18.0″ _dynamic_attributes=”link_option_url” _module_preset=”default” link_option_url=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9saW5rX3VybF9wYWdlIiwic2V0dGluZ3MiOnsicG9zdF9pZCI6IjE2MzIifX0=@” global_colors_info=”{}”][\/wahi_breadcrumb-link][wahi_breadcrumb-link title=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF90aXRsZSIsInNldHRpbmdzIjp7ImJlZm9yZSI6IiIsImFmdGVyIjoiIn19@” _builder_version=”4.18.0″ _dynamic_attributes=”title” _module_preset=”default” module_text_color=”#686E6E” global_colors_info=”{}”][\/wahi_breadcrumb-link][\/wahi_breadcrumb][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _dynamic_attributes=”content” _module_preset=”default” header_font_size=”3.5rem” header_line_height=”4.5rem” header_font_size_tablet=”42px” header_font_size_phone=”2.75rem” header_font_size_last_edited=”on|phone” header_line_height_tablet=”4.5rem” header_line_height_phone=”3.2rem” header_line_height_last_edited=”on|desktop” global_colors_info=”{}”]@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF90aXRsZSIsInNldHRpbmdzIjp7ImJlZm9yZSI6IjxoMT4iLCJhZnRlciI6IjwvaDE+In19@[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” custom_padding=”1px||1px|||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][wahi_socialsharing _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][\/wahi_socialsharing][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”24px” text_line_height=”1.5em” custom_margin=”||10px|||” global_colors_info=”{}”]<\/p>\n

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The Bank of Canada has been relentlessly hiking interest rates and stressing out homebuyers, but experts say it’s the right medicine for the economy.\u00a0\u00a0<\/span><\/p>\n<\/div>\n

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By Josh Sherman\u00a0<\/span>| 5 minute read<\/p>\n

[\/et_pb_text][et_pb_post_title title=”off” author=”off” date_format=”M j” categories=”off” comments=”off” featured_image=”off” _builder_version=”4.18.0″ _module_preset=”default” custom_margin=”||32px|||” global_colors_info=”{}”][\/et_pb_post_title][et_pb_image src=”@ET-DC@eyJkeW5hbWljIjp0cnVlLCJjb250ZW50IjoicG9zdF9mZWF0dXJlZF9pbWFnZSIsInNldHRpbmdzIjp7fX0=@” align=”center” force_fullwidth=”on” _builder_version=”4.18.0″ _dynamic_attributes=”src” _module_preset=”default” border_radii=”on|32px|32px|32px|32px” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”1.13rem” text_line_height=”1.75rem” custom_margin=”||2px|||” locked=”off” global_colors_info=”{}”]<\/p>\n

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Image via Unsplash<\/p>\n<\/div>\n<\/div>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/p>\n

With the Bank of Canada hiking its key interest rate on seven consecutive occasions since March 2022, economic policymakers have been busy pulling the levers.<\/span><\/p>\n


The central bank\u2019s key interest rate impacts everything from credit-card debt and student-loan repayments to lines of credit and, of course, mortgages \u2014 and it leapt from 0.5% to 4.25% in just 10 months (UPDATE: As of June 5, 2024, the overnight rate stands at 4.75%). <\/span>

\u201cThere\u2019s nobody that can escape this,\u201d says Moshe Lander, senior economics lecturer at Concordia University, of hikes to the key rate (also known as the overnight rate). \u201cAny time that you see somebody borrowing money, they are directly influenced by the decisions of the Bank of Canada to increase the overnight rate,\u201d he tells Wahi.<\/span><\/break><\/p>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” background_color=”#edf7f3″ custom_padding=”32px||32px||true|false” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on” da_disable_devices=”off|off|off”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” header_2_text_align=”center” header_2_text_color=”#38505b” header_2_font_size=”2.63rem” header_2_line_height=”3.75rem” max_width=”800px” module_alignment=”center” header_2_font_size_tablet=”32px” header_2_font_size_phone=”27px” header_2_font_size_last_edited=”on|phone” header_2_line_height_tablet=”3.75rem” header_2_line_height_phone=”32px” header_2_line_height_last_edited=”on|phone” global_colors_info=”{}”]<\/p>\n

“Any time that you see somebody borrowing money, they are directly influenced by the decisions of the Bank of Canada.”<\/strong><\/h2>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on” da_disable_devices=”off|off|off”][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/p>\n

Ahead of the BoC\u2019s first scheduled rate announcement of the year on January 25, Canadians are \u2014 no surprise \u2014 stressing out over debt as they face skyrocketing borrowing costs. Just look at the <\/span>latest quarterly reading of the MNP Consumer Debt Index<\/span><\/a>: A record 47% of Canadians are worried about their debt, up seven percentage points from the previous quarter. <\/span>

Shockwaves have also been sent through the real estate<\/a> sector, the single biggest component of the Canadian economy. <\/span>Home sales were down 39.1%<\/span><\/a> on a year-over-year basis in December, while prices dropped 7.5% annually, according to the Canadian Real Estate Association. \u00a0<\/span>
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However, experts suggest that short-term pain is necessary to get Canada\u2019s economy back on track \u2014 and sidestep the dangers of runaway inflation. (According to StatCan\u2019s Consumer Price Index<\/a>, a measure of goods and services costs over time, inflation peaked at 8.1% in June, well above the BoC\u2019s 2% target.)<\/span> <\/span><\/break><\/p>\n

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[\/et_pb_text][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/p>\n

What Good Are Higher Interest Rates?\u00a0\u00a0<\/b><\/h2>\n

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Rate hikes are the Bank of Canada\u2019s main tool to bring inflation back down to earth. \u201cThe overnight rate is the key policy lever used by the Bank of Canada to impact demand,\u201d Marc Desormeaux, principal economist at Desjardins, tells Wahi. \u201cBorrowing costs go higher \u2014 that has an impact on demand. That\u2019s intended to cool the economy in a way that helps slow inflation, and that\u2019s what\u2019s going on right now,\u201d he adds.

Inflation means the prices of goods and services are increasing; by hiking interest rates, the Bank of Canada discourages spending and borrowing, thereby reducing demand \u2014 and, consequently, prices \u2014 in an economy. It\u2019s the law of supply and demand in effect. (Conversely, the central bank can kickstart a sluggish economy by trimming rates, which matched a record low of 0.25% in the pandemic\u2019s early days.)<\/break><\/span><\/p>\n

[\/et_pb_text][et_pb_divider show_divider=”off” admin_label=”Divider” _builder_version=”4.18.0″ _module_preset=”default” height=”40px” locked=”off” global_colors_info=”{}”] [\/et_pb_divider][et_pb_image src=”https:\/\/wahi.com\/wp-content\/uploads\/2023\/01\/Overnight-rate-boc.png” alt=”top 5 GTA neighbourhoods for overbidding in December 2022″ title_text=”Overnight-rate-boc” _builder_version=”4.18.0″ _module_preset=”default” min_height_tablet=”” min_height_phone=”” min_height_last_edited=”on|phone” global_colors_info=”{}”][\/et_pb_image][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/span>\u201cInflation needs to be under control; the way you get it under control is you raise interest rates,\u201d explains Wahi\u2019s CEO, Benjy Katchen.
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\nThe housing market is one example of how this plays out. In real estate, generally, interest rates inversely affect prices. Cheap financing helped spur a historic runup in home prices in 2021. Now, with higher mortgage rates, more buyers are standing to the sidelines and \u2014 though some areas are still seeing competitive bidding<\/a> \u2014 many homeowners are either accepting lower offers or pulling their listings.
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\nAlthough higher carrying costs create affordability challenges, if housing prices continue to decline the upshot may be that home ownership becomes within reach for more Canadians, notes Katchen. \u201cI think that\u2019s a silver lining,\u201d he says.<\/break><\/break><\/span><\/span>[\/et_pb_text][et_pb_text _builder_version=”4.18.0″ _module_preset=”default” text_font_size=”21px” text_line_height=”1.6em” header_2_font=”||||||||” header_2_font_size=”36px” header_2_line_height=”1.3em” header_3_font_size=”1.25rem” header_3_line_height=”1.88rem” header_4_font=”|700|||||||” header_4_font_size=”1.25rem” header_4_line_height=”1.88rem” global_colors_info=”{}”]<\/p>\n

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Why Are Interest Rates Rising so Fast?\u00a0\u00a0<\/b><\/h2>\n

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Signs of more rapid inflation were emerging during the pandemic, but, with lockdowns and other COVID-19 restrictions already battering the economy, the Bank of Canada had its hands tied. \u201cWhat the Bank of Canada did then was they held their nose, they looked the other way, and they allowed inflation to go above their target \u2014 and probably to an uncomfortably high level,\u201d says Lander.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

As the economy reopened, though, the central bank began taking decisive action to tackle inflation, which had worsened due in part to supply-chain issues. \u201cThey had to move aggressively to make up for lost time. Where they might have done this gradually over a period of years, instead they were forced to do it all within one year,\u201d Lander explains.<\/span><\/p>\n

    <\/ul>\n

    [\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.18.0″ _module_preset=”default” background_color=”#f0faf4″ min_height=”334.8px” custom_padding=”3px||0px|||” da_disable_devices=”off|off|off” global_module=”849″ saved_tabs=”all” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row custom_padding_last_edited=”on|phone” _builder_version=”4.20.2″ _module_preset=”default” custom_margin=”|auto|3px|auto||” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|phone” custom_padding=”60px||43px||false|false” custom_padding_tablet=”” custom_padding_phone=”||65px||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.2″ _module_preset=”default” header_2_text_align=”center” header_2_text_color=”#38505b” header_2_font_size=”2.63rem” header_2_line_height=”3.2rem” custom_margin=”||25px|||” custom_margin_tablet=”” custom_margin_phone=”||||false|true” custom_margin_last_edited=”on|phone” custom_padding=”||0px||false|false” header_2_font_size_tablet=”2.63rem” header_2_font_size_phone=”2rem” header_2_font_size_last_edited=”on|phone” header_2_line_height_tablet=”3.75rem” header_2_line_height_phone=”2.5rem” header_2_line_height_last_edited=”on|desktop” locked=”off” global_colors_info=”{}”]<\/p>\n

    We put the real<\/em> back in real estate.<\/span><\/h2>\n

    [\/et_pb_text][et_pb_text admin_label=”Text” _builder_version=”4.20.2″ _module_preset=”default” text_text_color=”#e8db3a” text_font_size=”20px” text_orientation=”center” max_width_tablet=”” max_width_phone=”90%” max_width_last_edited=”on|phone” module_alignment=”center” min_height=”35.8px” custom_margin=”5px||35px||false|false” custom_padding=”||||false|false” custom_padding_tablet=”” custom_padding_phone=”|26px||26px|false|true” custom_padding_last_edited=”on|phone” text_font_size_tablet=”” text_font_size_phone=”0.85rem” text_font_size_last_edited=”on|phone” module_alignment_tablet=”” module_alignment_phone=”center” module_alignment_last_edited=”on|phone” global_colors_info=”{}”]<\/p>\n

    Join Wahi today and find out how easy it is to get real estate in Canada.<\/span><\/p>\n

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