As interest rates rise again, what does it reflect?

The Canadian mortgage market has already seen a significant shift from floating rates to fixed rates among borrowers, and last week’s rate hike decision by the Bank of Canada will only further accelerate this trend. The 25-basis-point increase in the central bank’s policy rate means that borrowers across the country are also adjusting their mortgage rates upward. While fixed rates are also rising, many economists believe that the central bank may have further rate hikes in store for the remainder of the year.

However, the recent increase in the five-year Canadian government bond yield, which has a significant impact on fixed mortgage rates, has led many borrowers to inquire about rate locks before fixed rates rise further. Experts note that the sharp increase in fixed rates has prompted many borrowers to seek renewal options, with many considering early renewals, while first-time homebuyers are eager to lock in the current rates for pre-approval.

Victor Tran of RATESDOTCA told Canadian Mortgage Professional that a sizeable recent increase in fixed rates had “put a rush” on a lot of borrowers to look into their renewal options, with many considering renewing early and first-time homebuyers anxious to lock in current rates for preapproval.

“I have a good amount of clients that are up for renewal this year, and I typically would reach out to these clients four months prior to the renewal date just to start shopping around for a mortgage rate, a lot of people won’t respond – four months out is still pretty early, and that’s expected, most people will start to action things 60 days on average prior to that. But suddenly this past week, a lot of those clients of mine finally reached out to say, ‘Sorry I haven’t responded to you, it’s been a crazy week – but yeah, let’s see what’s available. Let’s lock something in.’”

That’s partly a result of recent headlines about rates rising, Tran said – although those who have been jolted into action in recent days are likely too late to avail of the best possible deal on fixed rates.

“They kind of missed out on the high 4% range for fixed rates and now they’re looking at mid-five-percents for renewal rates,” he said. “But it’s definitely impacting the market a little bit, and consumer sentiment. People are hearing about it, for sure.”

Rising home prices and their impact on the Bank of Canada’s thinking

The central bank’s recent rate hike measures were prompted by multiple indicators showing that the pace of economic growth exceeded the comfort range, particularly with persistently high inflation and a robust labor market. The recent surge in housing prices has also raised concerns for the central bank. In Toronto, prices continued to rise in May, declining only 1.2% compared to the same month last year, and adjusted for seasonality, prices grew by 3.5% year-on-year in April. This has fueled demand in the real estate market, with many people not wanting to miss out on opportunities. Buyers have shifted from a wait-and-see approach to taking action because they know rates may stay at current levels for some time. If they don’t act now, they might miss out on the opportunity.

Could sellers decide to list now instead of waiting for prices to rise further?

While many believe that the latest rate hike measures will cool down the Canadian real estate market, experts don’t think sellers will rush to sell their properties now instead of waiting for further price increases as they might do in a hot market. Demand still far outweighs supply, and many buyers have reentered the market in search of buying opportunities, while inventory remains very tight. Therefore, for existing homeowners, if there are no other properties available for purchase in the market, they are unlikely to list their homes for sale.

Source: https://www.mpamag.com/ca/mortgage-industry/industry-trends/how-are-borrowers-reacting-as-rates-tick-upwards-again/448962