5-Year Fixed Rates Are Above 4%

Since interest rates were increased last week, the 5-year fixed rates have also increased, and the big banks are advertising 5-year fixed rates above 4%. The insured 5-year fixed rates are now averaging 3.98% while the uninsured mortgages average 4.12%, this is according to the research conducted by Rob McLister. The results also reveal that this increase is up 25-basis points since the start of the April and an increase of 10 basis points from last Wednesday alone.

The increase in 5-year fixed rates is because of the Government’s 5-year bond yield increased again to a 11-year high of 2.80% last week which is higher than the expected inflation data. In addition, Statistics Canada also revealed that the consumer price index rose to 6.7% in March, which is a significant increased from 5.7% inflation rate in February. Because of concerns for inflation persists in different markets of Canada, many businesses within the mortgage industry are expecting the BoC to further increase benchmark rate to 2-3% (the overnight target rate is currently 1%).

Rising Rates A “Game Changer” for The Housing Market

With rapid rise in fixed rates seen to date, and an increase to variable rates is also expected in the coming months, Canada’s housing market is likely to soon feel the effects of increased rates. “Rising rates are a problem and will almost certainly weight significant on [housing] demand through the remainder of the year unless things change quickly,” wrote real estate analyst Ben Rabidoux. “Resale markets across the country are still exceptionally tight, but we are now seeing a significant inventory build the likes of which we haven’t seen since 2010.”

However, it is important to consider that the impact of higher fixed rates has been muted amongst borrowers because they were able to take advantage of rate holds and shifted to lower variable rates. Nevertheless, the future variable-rate increase will leave borrowers “with no escape” and have a direct impact on affordability.

“Every buyer across the country will feel the pinch of rising. But those in the most expensive markets will feel it most. We expect downward price pressure to be more intense in Vancouver, Toronto and other pricy markets. This will translate into larger annual price declines in 2023 in British Columbia and Ontario” highlighted by Robert Hogue.

Hogue also added that there could be a silver lining in all of this.

“Rather than pose a major threat, we think rising interest rates are likely to bring welcome changes to the market – including more sustainable activity, fewer price wars, more balanced conditions, and modest price relief for buyers,”.