Interest Rates Rise Yet Again and are Expected to Rise Again in July

On June 7th, the Bank of Canada raised the key interest rate 25 basis points, bringing the key rate to 4.75%. This is the highest key interest rate Canada has seen since 2001. The prime rate now sits at 6.95%. 

According to the Bank of Canada, our stronger-than-expected economy is the reasoning behind the most recent rate hike. Core inflation remains elevated, unemployment is near record lows, and GDP continues to rise despite the Bank of Canada's aggressive monetary policy. The Bank of Canada paused its interest rate hikes back in January, but were clear about continuing to raise the rate if inflation does not continue to trend downwards. Canada's inflation rate climbed to 4.4% in May, which prompted the most recent rate hike. 

However, in recent days, the labour market saw a small crack appear. The unemployment rate rose for the first time in nine months, which signals that the interest rate hikes are beginning to take effect. Unemployment stands at 5.2%, up from 5.0% since the beginning of 2023. Analysts are seeing deeper signs of a softening economy with weakness in total employment and a monthly decline in hours worked.

It is unclear whether this will be enough to hold off on another interest rate increase come July 12th. 

The Greater Toronto Area real estate market has proven resilient regardless of the elevated interest rates. Buyer demand has picked up considerably since the winter, and is expected to remain strong throughout the summer. Entry level condos in the downtown core, as well as starter homes in the 905 are seeing the greatest amount of demand with multiple offers and sales typically exceeding list price. Larger higher priced detached homes in the 905 are seeing far less buyer demand, with longer days on market and less offers. The major underlying factor that contributes to the resilient market in the GTA are the low levels of inventory of homes for sale.

On the other hand, the rental market in the Greater Toronto Area is the strongest it has ever been. As more prospective buyers are getting priced out of the market as interest rates rise, demand in the rental market continues to increase to unprecedented levels. Multiple offers above list price for rentals is the standard across the Greater Toronto Area, and it is only expected to get worse if the Bank of Canada raises interest rates again in July.

Buyers that are sitting on the fence are strongly advised to get into the market sooner rather than later, before interest rates rise again and when competition remains manageable.

For those looking for an investment, it may be the right time to buy, as the rental market is extremely hot at the moment. Depending on how large your mortgage is and depending on the individual property, there is potential for a cash flow positive investment.

If you want to learn more about how the elevated interest rate affects your real estate goals, click the link below to schedule a call with me.

https://calendly.com/davidrizzuto/consultation-call?back=1&month=2023-06