Posted on Friday November 09, 2018
The recent increase in the Bank of Canada lending rate has made Fraser Valley land sellers and buyers nervous but a close look at the mortgage market shows that rates remain at historic lows and the recent small increases may have actually improved market conditions for buyers.
I know this appears counter-intuitive, so let me explain.
First, the Bank of Canada rate increases this year have been minor, raising the overnight lending rate by 25 basis points on October 24, which followed two similar increases since January. The cumulative increase has raised the bellwether-lending rate to 1.75%, which is among the lowest in history.
As a result, the five-year variable rate has risen to an average of 3.15%. For a buyer who is financing a $1 million property purchase with a 20% downpayment, the increase in the mortgage payment amounts to an additional $304 per month, compared to what it would have been before the rate increases started in January.
However, since January the average price of a detached house in the Fraser Valley has declined by 2.2%, or $26,000. This is the equivalent of saving seven years of mortgage payments on a $1 million purchase at today’s rates.
Also, interest rates increase for one primary reason: the economy is improving. In the past few months, B.C. has become a global player in the natural gas industry, for instance, and the Fraser Valley continues to post one of the lowest unemployment rates in Canada, at 4.4%.
No one in real estate is likely to cheer any mortgage rate increase but the slight increases we have seen this year have brought a greater stability to the Fraser Valley real estate environment.