Does the Bank of Canada's most recent rate hike mark the ultimate demise?

On Wednesday, the Bank of Canada raised its overnight rate by 25 basis points, bringing it to 5.0 percent. This decision is part of a significant tightening of monetary policy, returning interest rates to levels not seen since the 2007-08 financial crisis. For some, this latest rate hike feels like the decisive blow that solidifies a troubling situation, while others hope it truly marks the end of rate increases. Tiff Macklem, the governor of the Bank of Canada, expresses uncertainty and asserts that further rate hikes are not off the table if deemed necessary.

The recent unexpected rate hike appears to have had an immediate impact on the sentiment of the real estate market. It could be seen as another minor warning sign, similar to the initial 25 basis point hike in February 2022, as it has achieved a comparable outcome. There are reports of distress among homeowners circulating within the real estate community, with many professionals publicly expressing empathy towards those facing difficulties.

As a result of the rate hike, commercial bank prime rates have risen to 7.20 percent. Consequently, variable rate mortgages are now hovering around the 6.0 percent range, while HELOCs (Home Equity Lines of Credit) are surpassing 7.50 percent for most borrowers. This represents a significant increase from the rates of approximately 3.0 percent that instilled great confidence in the market during the peak of the pandemic era.

Following the announcement of the rate hike, the Canada 5-Year Government Bond yield experienced a consistent decline throughout the day on July 12. It started at 3.950 percent at the opening and closed at 3.812 percent. The yields have remained relatively stable within this range, which holds crucial importance as it serves as the primary pricing gauge for fixed-rate mortgages.

In Canada, fixed-rate mortgages are closely linked to government bond yields, specifically the yields of Government of Canada bonds with similar maturity periods. As bond yields rise, lenders are compelled to raise mortgage rates to make them more attractive investments compared to those bonds. If not, banks would prefer investing their funds in bonds, which are regarded as one of the safest investment options. Typically, banks add a risk premium to mortgage products, resulting in pricing at "GOC+2" or the bond yield plus 2.0 percent. Based on the current yields, this would translate to mortgage rates in the range of high 5.0 percent to low 6.0 percent.

Conversely, when bond yields decline, fixed mortgage rates tend to follow suit, making them more affordable for borrowers. Therefore, fluctuations in Canadian bond yields play a significant role in influencing the direction of fixed mortgage rates in the country.

This is the primary challenge faced by the Bank of Canada. Currently, a majority of homebuyers opt for fixed-rate mortgages due to their more favorable pricing compared to variable-rate mortgages. Consequently, when the central bank raises the interest rate, it does not significantly affect the demand side of the equation. Instead, it exerts pressure on the supply side, leading to financial strain and creating an incentive for property owners to sell. From the sounds of it, this is precisely the outcome they have achieved, as an increasing number of sellers are conceding to the Bank of Canada's influence. As a result, new property listings are generally surpassing sales, a trend that hasn't been observed for some time.

The Bank of Canada's focus on the housing market became evident through its Quarterly Monetary Policy report. Additionally, during the subsequent press release, Governor Macklem indicated a shift in reliance from unemployment as a key performance indicator (KPI) to placing increasing importance on the housing market and immigration in establishing potential outcomes for the Canadian economy.

In the release, Macklem acknowledged the significant impact of the interest rate hikes on the housing market, leading to a notable slowdown. However, he also noted that the slowdown was not as substantial as initially anticipated, and housing activity has since rebounded.

Macklem referred to the previous year's significant decline in house prices, which began following the initial rate hike in February. This decline resulted in a nearly 20 percent year-over-year drop in house prices, surpassing the previous record "crash" in house prices experienced by Canada in 1989.

Now we come to the significant questions: Is the ordeal reaching its conclusion? When will things start improving?

Initially, Macklem hinted that 5.0 percent might be the limit or the point at which he would cease increasing the overnight rate. We must remember that the Bank of Canada (BoC) has a mandated target rate of 2% to achieve. Finally, the overnight rate has significantly exceeded the inflation rate. This indicates that, when adjusted for inflation, the real interest rate has become positive.

The real interest rate is calculated as the nominal interest rate minus the inflation rate.

Traditionally, the nominal interest rate needs to align with the inflation rate before a reversion begins. On average, interest rates tend to remain at their peak for around nine months before rate cuts are implemented.


June 2023 Real Estate Market Report

In June 2023, home sales and the average selling price in the Greater Toronto Area (GTA) remained higher compared to the previous year. However, when considering seasonal adjustments, sales showed a decline compared to the previous month. On the other hand, the seasonally adjusted average selling price and the MLS® Home Price Index (HPI) Composite benchmark increased compared to the previous month.

 According to Paul Baron, President of the Toronto Regional Real Estate Board (TRREB), the demand for owning a home is stronger than last year, despite the increased costs of borrowing. However, uncertainty surrounding the Bank of Canada's stance on inflation and interest rates affected home sales last month. Additionally, the persistent lack of available properties likely deterred some potential buyers who couldn't find a home that suited their needs. Essentially, if a home isn't available, it cannot be purchased.

In June 2023, GTA REALTORS® recorded a total of 7,481 sales through the MLS® System of TRREB, marking a 16.5 percent increase compared to June 2022. However, the number of listings decreased by three percent during the same period.

 The rise in sales compared to the previous year, along with the decline in new listings, indicates that market conditions in June were more competitive than during the same period last year. The average selling price experienced a 3.2 percent increase, reaching $1,182,120. However, the MLS® HPI Composite benchmark still showed a 1.9 percent decrease compared to the previous year, marking the slowest annual rate of decline in 2023. On a month-over-month basis, both the seasonally adjusted average price and the MLS® HPI Composite benchmark demonstrated an increase.

“A resilient economy, tight labour market and record population growth kept home sales well above last year’s lows. Looking forward, the Bank of Canada’s interest rate decision this month and its guidance on inflation and borrowing costs for the remainder of 2023 will help us understand how much sales and price will recover beyond current levels,” said TRREB Chief Market Analyst Jason Mercer.

 “GTA municipalities continue to lag in bringing new housing online at a pace sufficient to make up for the current deficit and keep up with record population growth. Leaders at all levels of government, including the new mayor-elect of Toronto, have committed to rectifying the housing supply crisis. We need to see these commitments coming to fruition immediately, or we will continue to fall further behind each month,” stressed TRREB CEO John DiMichele. “In addition to the impact of the listing shortage, housing affordability is also hampered on an ongoing basis by taxation and fees associated with home sales and construction as well as the general level of taxation impacting households today. Going forward, we need to look at all of the factors influencing the household balance sheet and people’s ability to house themselves,” continued DiMichele.

 As professionals in the industry, it is crucial for us to adapt to these changing circumstances and strategize accordingly. We must proactively assess the market conditions, provide accurate and up-to-date information to our clients, and offer suitable guidance to navigate these new challenges effectively.

By staying informed about the latest developments, tracking interest rate trends, and understanding buyer preferences, we can position ourselves to better assist both buyers and sellers in achieving their real estate goals. It is vital to offer thorough market analyses, comprehensive advice, and personalized solutions to address the concerns that our clients may have.

 Source: Market Watch

As always, we are here to guide and educate all our clients, if you have any questions we are just a text, email or phone call away!


Latest FCAC Directives Safeguard Mortgage Borrowers Facing Possible Loan Default

In light of increasing household debt and elevated interest rates, the Financial Consumer Agency of Canada (FCAC) is taking measures to ensure that banks offer appropriate assistance to mortgage holders facing potential default.

Recently, the FCAC released a fresh guideline instructing federally regulated financial institutions (FRFIs) to deliver customized support to individuals who have mortgages on their primary residences and are undergoing "significant" financial challenges.

Based on findings from FCAC research, there is a notable increase in the number of homeowners with mortgages who are facing potential financial difficulties, such as relying more on borrowing for daily expenses or depleting their savings.

The FCAC emphasized that all feasible mortgage relief options should be taken into account, which may include measures like waiving prepayment penalties, internal fees, and costs, refraining from charging interest on interest, and extending the amortization periods.

FRFIs are encouraged to take proactive steps by reaching out to mortgage holders at risk and offering them details about available relief measures, enabling them to make well-informed decisions in a timely manner. Furthermore, FRFIs are expected to provide educational tools and resources at no expense to the consumer, aimed at promoting responsible financial decision-making.

Stay informed, Stay up to date - The Olivera Group Real Estate 

Anthony Olivera & Ann Rahinel -


Exciting Progress in Mississauga's Exchange District Condos!

Exciting progress is unfolding in Mississauga as Exchange District Condos, developed by Camrost-Felcorp, takes center stage in the city's skyline. This remarkable multi-tower development, masterfully designed by Arcadis, is making significant strides towards becoming the tallest building in Mississauga, poised to surpass the current record held by Absolute World's 176-meter south tower.

Exchange District Condos represents the epitome of urban transformation and promises a dynamic lifestyle at the heart of Mississauga. Immerse yourself in the thriving downtown core, where culture, commerce, and connectivity seamlessly converge. With a prime location and contemporary design, Exchange District Condos offers unparalleled living spaces, workspaces, and retail options.

Two towers within this extraordinary development will exceed the impressive 200-meter milestone, making a bold statement in architectural achievement. As construction progresses, the cityscape is already undergoing a transformation, with the 60 and 72-storey towers taking shape before our eyes.

To learn more about the remarkable Exchange District Condos and delve into the exciting world of preconstruction opportunities, we invite you to reach out to Ann and Anthony from the Olivera Group. Their expertise and in-depth knowledge of real estate investing and preconstruction will guide you towards making informed and educated decisions. 

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Anthony Olivera & Ann Rahinel - or (647) 951-0850